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Cross-sectional Earnings Risk and Occupational Sorting: The Role of Risk Attitudes

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Author Info
Holger Bonin () (IZA Bonn)
Thomas Dohmen () (IZA Bonn)
Armin Falk () (IZA Bonn and University of Bonn)
David Huffman () (IZA Bonn)
Uwe Sunde () (IZA Bonn and University of Bonn)

Additional information is available for the following registered author(s):

Abstract

This paper investigates whether risk preferences explain how individuals are sorted into occupations with different earnings variability. We exploit data from the German Socio- Economic Panel, which contains a subjective assessment of willingness to take risks whose behavioral relevance has been validated in previous work. As a measure of earnings risk, we use the cross-sectional variation in earnings that is left unexplained by human capital in Mincerian wage regressions. By relating earnings risk to the measure of individual risk preference, our evidence shows that individuals with low willingness to take risks are more likely to be sorted into occupations with low earnings risk. This pattern is found regardless of the level of occupation categories, region, gender and labor market experience. We also find that risk preferences are significant determinant of wages in a Mincer regression, illustrating the importance of preferences and attitudes in addition to more standard regressors.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1930.

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Length: 34 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:iza:izadps:dp1930

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Related research
Keywords: occupational choice; sorting; risk preferences; GSOEP; earnings risk;

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Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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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.:
  1. Hwang, Hae-shin & Reed, W Robert & Hubbard, Carlton, 1992. "Compensating Wage Differentials and Unobserved Productivity," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 835-58, August. [Downloadable!] (restricted)
  2. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December. [Downloadable!] (restricted)
  3. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, vol. 28(3), pages 639-647, July. [Downloadable!] (restricted)
  4. Thomas DeLeire & Helen Levy, 2004. "Worker Sorting and the Risk of Death on the Job," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 925-954, October. [Downloadable!]
  5. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. E. Elisabet Rutstrom & Glenn W. Harrison & Morten I. Lau, 2004. "Estimating Risk Attitudes in Denmark," Econometric Society 2004 Australasian Meetings 201, Econometric Society. [Downloadable!]
  8. Jovanovic, B. & Nyarko, Y., 1996. "Stepping Stone Mobility," Working Papers 96-26, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  9. Moore, Michael J, 1995. "Unions, Employment Risks, and Market Provision of Employment Risk Differentials," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 57-70, January.
  10. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February. [Downloadable!] (restricted)
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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. Bargain, Olivier & Melly, Blaise, 2008. "Public Sector Pay Gap in France: New Evidence Using Panel Data," IZA Discussion Papers 3427, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Holger Bonin & Amelie Constant & Konstantinos Tatsiramos & Klaus F. Zimmermann, 2006. "Ethnic Persistence, Assimilation and Risk Proclivity," Discussion Papers of DIW Berlin 658, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  3. Borghans Lex & Cörvers Frank, 2009. "The Americanization of European Higher Education and Research," Research Memoranda 010, Maastricht : ROA, Research Centre for Education and the Labour Market. [Downloadable!]
  4. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2008. "The Intergenerational Transmission of Risk and Trust Attitudes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Jürg Schweri & Stefan C. Wolter & Joop Hartog, 2008. "Do Students Expect Compensation for Wage Risk?," Economics of Education Working Paper Series 0011, University of Zurich, Institute for Strategy and Business Economics (ISU). [Downloadable!]
    Other versions:
  6. Armin Falk & Thomas Dohmen & Uwe Sunde, 2009. "Kontrolliert und repräsentativ: Beispiele zur Komplementarität von Labor- und Felddaten," SOEPpapers 168, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
    Other versions:
  7. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2009. "The Intergenerational Transmission of Attitudes," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 7(1), pages 8-12, 04. [Downloadable!]
  8. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2009. "Are Risk Aversion and Impatience Related to Cognitive Ability?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Sabrina Teyssier, 2008. "Les Modes de Rémunération comme MécanismesSélectifs de la Main d’oeuvre : Fondements Théoriques et Estimations Empiriques," Post-Print halshs-00303703_v1, HAL. [Downloadable!]
  10. Sabrina Teyssier, 2008. "Les Modes de Rémunération comme Mécanismes Sélectifs de la Main d’oeuvre : Fondements Théoriques et Estimations Empiriques," Working Papers 0818, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  11. Herings P. Jean-Jacques & Predtetchinski Arkadi, 2009. "Bargaining with Non-convexities," Research Memoranda 042, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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