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Title: An Empirical Examination of Annual Wage Variation: Expanding Beyond Mincer to Human Capital Portfolios

Citation Type: Miscellaneous

Publication Year: 2010

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Abstract: Using data from the 1960 and 2000 U.S. Census for white male workers, twoeconometric models, and the standard deviation of the natural log of wages as thevariation measure, I find that education has a multi-faceted role in predicting thevariance of annual wages over the work life. Investment in education throughcollege reduces annual wage variation, and this implies that investment in humancapital can increase mean earnings while reducing the variation of those earnings.This result implies that education has a diversification effect. When education isinteracted with age (or potential experience), education increases the variation ofwages as the worker ages. Past research, including the seminal works of Becker(1993) and Mincer (1974), has focused more on the education-age interactionterm while being close to silent on the impact of education when separated fromage. A second result indicates that the impact of education on annual wagevariation (both in isolation and when interacted with age) is smaller for full-timefull-year workers than for all workers in the labor force. In addition to theseresults, this paper contributes to the literature by using portfolio theory to explaineducations complex contribution to wage variation.

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Authors: Coogan, Laura L.

Publisher: University of Kentucky

Data Collections: IPUMS USA

Topics: Other

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