Among college graduates, teachers have both low average AFQT* and high
average risk aversion, perhaps because the compression of earnings
within teaching attracts relatively risk-averse individuals. (*Armed Forces Qualification Test (AFQT). AFQT
scores are computed using the Standard Scores from four ASVAB** subtests:
Arithmetic Reasoning (AR), Mathematics Knowledge (MK), Paragraph
Comprehension (PC), and Word Knowledge (WK). **Armed Services Vocational Aptitude Battery (ASVAB)
Using a
dynamic optimization model with unobserved heterogeneity, this study shows that
were it possible to make teacher compensation mimic the return to skills
and riskiness of the non-teaching sector, overall compensation in
teaching would increase.
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