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Risk and Career Choice

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Author Info
Raven Saks (Harvard University)
Stephen Shore (University of Pennsylvania)
Abstract

Choosing a type of education is one of the largest financial decisions we make. Educational investment differs from other types of investment in that it is indivisible and non-tradable. These differences lead agents to demand a premium to enter careers with more idiosyncratic risk. Since the required premium will be smaller for wealthier agents, they will tend to enter careers with more idiosyncratic risk.After developing a model of career choice, we use data from the Panel Study of Income Dynamics (PSID) to estimate the risk associated with different careers. We find education, health care, and engineering careers to have relatively safe streams of labor income; business, sales, and entertainment careers are more risky.By choosing a college major, many students make a costly human capital investment that allows them to enter a specific career. To examine the link between wealth and college major choice implied by the model, we use data on choice of college major from the National Postsecondary Student Aid Survey (NPSAS). Controlling for observable measures of ability and background, we find evidence that wealthier students tend to choose riskier careers, particularly business.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Advances in Economic Analysis & Policy.

Volume (Year): 5 (2005)
Issue (Month): 1 ()
Pages: 1414-1414
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I2 - Health, Education, and Welfare - - Education

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  3. Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, vol. 93(3), pages 948-964, June. [Downloadable!]
    Other versions:
  4. Topel, Robert H, 1984. "Equilibrium Earnings, Turnover, and Unemployment: New Evidence," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 500-522, October. [Downloadable!] (restricted)
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  7. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February. [Downloadable!] (restricted)
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  8. Ashenfelter, Orley & Krueger, Alan B, 1994. "Estimates of the Economic Returns to Schooling from a New Sample of Twins," American Economic Review, American Economic Association, vol. 84(5), pages 1157-73, December. [Downloadable!] (restricted)
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  11. Luis M. Viceira, 1999. "Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income," NBER Working Papers 7409, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Richard B. Freeman, 1976. "A cobweb model of the supply and starting salary of new engineers," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 29(2), pages 236-248, January.
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  19. Shlomo Benartzi, 2001. "Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock," Journal of Finance, American Finance Association, vol. 56(5), pages 1747-1764, October. [Downloadable!] (restricted)
  20. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September. [Downloadable!] (restricted)
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  22. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Y. Campbell, 2006. "Household Finance," NBER Working Papers 12149, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Asena Caner & Cagla Okten, 2008. "Risk and Career Choice: Evidence from Turkey," Working Papers 0803, TOBB University of Economics and Technology, Department of Economics. [Downloadable!]
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This page was last updated on 2008-11-15.

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