The Risk and Return of Human Capital Investments

Kristian Koerselman and Roope Uusitalo

No 7752, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Investing in human capital increases lifetime income, but these investments may involve substantial risk. In this paper we use a Finnish panel spanning 22 years to predict the mean, the variance and the skew of the present value of lifetime income, and to calculate certainty equivalent lifetime income at different levels of education. We find that university education is associated with about a half a million euro increase in discounted lifetime disposable income compared to vocational high school. Accounting for risk does little to change this picture. By contrast, vocational high school is associated with only moderately higher lifetime income compared to compulsory education, and the entire difference is due to differential nonemployment.

Keywords: education; risk; lifetime income; human capital (search for similar items in EconPapers)
JEL-codes: C33 I24 J31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-11
New Economics Papers: this item is included in nep-edu, nep-hrm and nep-lab
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Citations: View citations in EconPapers (4)

Published - published in: Labour Economics, 2014, 30, 154-163

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Journal Article: The risk and return of human capital investments (2014)
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