A Theoretical and Empirical Study of Occupational Choice under Uncertainty

This paper will present a model of occupational choice in which the agents are uncertain about their wage within the occupation. Agents are assumed to know their own stock of human capital and the distribution of wages per unit of human capital in the occupation at the time of initial labor market entry. The agents decide which occupation to select based on their expected utility from each occupation, given the tastes for future consumption, the available stock of human capital, the tastes for the occupation, the costs of entry into the occupation, the assets available for consumption, the tastes for risk, and the distribution of wages within each occupation. By specifying the form of the utility function, we can derive estimable equations relating the probability of choosing an occupation, i, to the moments of the distribution of wages and the past accumulations of human capital. By imposing appropriate restrictions on the parameters of the model, both within equations and across equations, all the parameters of the structural model underlying the occupational choice may be derived.