Abstract
We replicate Shaw (J Labor Econ 14(4):626–653, 1996) who found that individual wage growth is higher for individuals with greater preference for risk taking. Expanding her dataset with more American observations and data for Germany, Spain, and Italy, we find evidence that risk attitudes are relevant but support is mixed at best for the original specifications.
Highlights
As individuals are known to differ in risk attitudes,1 one predicts, given everything else, a relationship between risk attitudes, investment and wages: less risk averse individuals will invest more and will experience higher wage growth and more wage volatility
Shaw estimates, for individual i, ln Wi = (1 + β0Riskattitudei )Xi A + γ Hi + ei where ln Wi is hourly wage growth, Riskattitude measures the attitude of an individual toward risk, Xi is the matrix for human capital variables and Hi includes additional controls
For the case of Germany, we only show the t-tests for the interaction between risk attitude and changes in years of experience squared since this is the only coefficient in Table 3 and Online Appendix Table B1 that shows a level of significance approaching acceptable levels
Summary
Shaw derives her specification from a theoretical model and thereby imposes a number of a priori restrictions. X: t ≥ 1.96 for at least one variable in the group, Eq 13; source Online Appendix Tables B3a–B3d z: t ≥ 1.64 for at least one variable in the group, Eq 13; source Online Appendix Tables B3a–B3d – : t < 1.64 for all variables in the group, Eq 13; source Online Appendix Tables B3a–B3d ARA absolute risk aversion ln Wi = a0 + a j zi j + θ3Risk3i + θ4 Risk4i + θ3 j Risk j zi j j =1 j =1 We call this model the unconstrained model, as it does not constrain the parameters to reflect a strict multiplicative effect of risk or assignment of explanatory variables to risk sensitive human capital variables X and other variables H. We will seek an answer to our three questions
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