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A life-cycle model of risk-taking on the job

Author

Listed:
  • Martin Kerndler

    (TU Wien
    Economica Institute of Economic Research)

  • Alexia Prskawetz

    (TU Wien
    Wittgenstein Centre for Demography and Global Human Capital (IIASA, OeAW, University of Vienna)
    International Institute for Applied Systems Analysis)

  • Miguel Sánchez-Romero

    (TU Wien
    Wittgenstein Centre for Demography and Global Human Capital (IIASA, OeAW, University of Vienna)
    International Institute for Applied Systems Analysis)

Abstract

Behavioral studies suggest that individuals become more averse to taking risks as they age. Nevertheless, the incidence of fatal work injuries is increasing in age in the US and the EU. We develop a life-cycle model that rationalizes this pattern. We find that the decreasing value of life incentivizes higher risk-taking towards the end of a career and can potentially dominate an increasing preference for safer jobs. Calibrated to the US, our model generates a compensating wage differential and a trade-off between wealth and mortality, by which wealthier workers give up part of their wages in favor of lower mortality risk at the workplace. In a counterfactual analysis, we study the effect of pension reforms and aging on on-the-job mortality, finding that a higher retirement age as well as lower baseline mortality reduce risk-taking at all ages, while a higher pension replacement rate only benefits older workers.

Suggested Citation

  • Martin Kerndler & Alexia Prskawetz & Miguel Sánchez-Romero, 2025. "A life-cycle model of risk-taking on the job," Journal of Population Economics, Springer;European Society for Population Economics, vol. 38(3), pages 1-32, September.
    • Handle: RePEc:spr:jopoec:v:38:y:2025:i:3:d:10.1007_s00148-025-01118-y
    DOI: 10.1007/s00148-025-01118-y
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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