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

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

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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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 14 (2007)
Issue (Month): 6 (December)
Pages: 926-937

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Handle: RePEc:eee:labeco:v:14:y:2007:i:6:p:926-937
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  8. 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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  11. 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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  16. Boyan Jovanovic & Yaw Nyarko, 1996. "Stepping Stone Mobility," NBER Working Papers 5651, National Bureau of Economic Research, Inc.
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  20. 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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