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Cross-sectional earnings risk and occupational sorting: The role of risk attitudes

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  • Bonin, Holger
  • Dohmen, Thomas J.
  • Falk, Armin
  • Huffman, David
  • Sunde, Uwe

Abstract

This paper investigates to what extent individuals’ risk preferences are correlated with the cross-sectional earnings risk of their occupation. We exploit data from the German Socio-Economic Panel, which contains a direct survey question about willingness to take risks that has been shown to be a behaviorally valid measure of risk aversion. As a measure of earnings risk, we use the cross-sectional variation in earnings that is left unexplained by human capital variables in Mincerian wage regressions. Our evidence shows that individuals with low willingness to take risks are more likely to work in occupations with low earnings risk. This pattern is found regardless of the level of occupation categories, region, gender and labor market experience.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20204.

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Date of creation: 2007
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Publication status: Published in Labour Economics 6 14(2007): pp. 926-937
Handle: RePEc:lmu:muenar:20204

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  1. Marco Caliendo & Frank Fossen & Alexander Kritikos, 2009. "Risk attitudes of nascent entrepreneurs–new evidence from an experimentally validated survey," Small Business Economics, Springer, vol. 32(2), pages 153-167, February.
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  3. Bernd Fitzenberger & Astrid Kunze, 2005. "Vocational Training and Gender: Wages and Occupational Mobility among Young Workers," Oxford Review of Economic Policy, Oxford University Press, vol. 21(3), pages 392-415, Autumn.
  4. 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.
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  9. Bonin, Holger & Dohmen, Thomas & Falk, Armin & Huffman, David & Sunde, Uwe, 2007. "Cross-sectional earnings risk and occupational sorting: The role of risk attitudes," Labour Economics, Elsevier, vol. 14(6), pages 926-937, December.
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  16. 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.
  17. Ekelund, Jesper & Johansson, Edvard & Jarvelin, Marjo-Riitta & Lichtermann, Dirk, 2005. "Self-employment and risk aversion--evidence from psychological test data," Labour Economics, Elsevier, vol. 12(5), pages 649-659, October.
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