Does risk matter for occupational choices? Experimental evidence from an African labour market
AbstractThis paper investigates the role of risk-aversion in the allocation of workers between formal and informal jobs in Ghana. In the model I propose risk-averse workers can opt between the free-entry informal sector and queuing for formal occupations. Conditional on identifying the riskier option, the model yields testable implications on the relationship between risk-preferences and workers’ allocation. My testing strategy proceeds in two steps. First, I estimate expected income uncertainty through panel data and find it significantly higher in the informal sector. Second, using novel experimental data to elicit individual attitudes to risk, I estimate the direct effect of risk-aversion on occupational choices and find that, in line with the first result, more risk-averse workers are more likely to queue for formal jobs and less likely to be in the informal sector. The results bear important implications for the optimal design of employment policies and social security.
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Bibliographic InfoPaper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2013-15.
Date of creation: 2013
Date of revision:
sector allocation; occupational choices; risk-aversion; informality;
Find related papers by JEL classification:
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-AFR-2013-10-25 (Africa)
- NEP-ALL-2013-10-25 (All new papers)
- NEP-DEV-2013-10-25 (Development)
- NEP-EXP-2013-10-25 (Experimental Economics)
- NEP-IUE-2013-10-25 (Informal & Underground Economics)
- NEP-LAB-2013-10-25 (Labour Economics)
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