Firms hiring fresh graduates face uncertainty on the future productivity of workers. Theory suggests that starting … as an indicator of the unobserved heterogeneity that employers face. We find solid evidence that starting wages are lower … if the variance of exam grades is higher and higher if the skew is higher: employers shift the cost of productivity risk …

We apply a recently proposed method to disentangle unobserved heterogeneity from risk in returns to education. We … unequivocally confirmed: uncertainty strongly dominates unobserved heterogeneity. …