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Risk Preference And Employment Contract Type

Author

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  • SARAH BROWN
  • LISA FARRELL
  • MARK N. HARRIS
  • JOHN G. SESSIONS

Abstract

We consider three broad types of employment contract vis, self-employment, PRP, and fixed wage employment. We focus on the implied degree of income risk associated with each type of employment contract, arguing that such risk falls as we move from self-employment at one extreme to fixed wage employment at the other. We investigate the possibility that there is a systematic relationship between employment within a particular contract type and risk preference as proxied by expenditure on risky goods and goods associated with risk averse behaviour. A typical question might be: 'do self-employed individuals attempt to compensate for the relatively high level of income risk they face by reducing their expenditure on relatively risky goods? Or, do such individuals have a taste for risk which they express in both their working and non-working life?' Our empirical analysis, based on pooled cross-section data drawn from the British Family Expenditure Survey 1997-2000, provides evidence of a systematic relationship between employment contract type and risk preference, with, for example, self-employed workers being more (less) likely to engage in the consumption of "risky" (financial security) products. The results are based the Ordered Generalized Extreme Values model (OGEV), a relatively infrequently used discrete choice model, which importantly allows for ordering and correlation in the observed alternatives.

Suggested Citation

  • Sarah Brown & Lisa Farrell & Mark N. Harris & John G. Sessions, 2002. "Risk Preference And Employment Contract Type," Department of Economics - Working Papers Series 845, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:845
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-02/845.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Weiping Kostenko & Mark Harris & Xueyan Zhao, 2012. "Occupational transition and country-of-origin effects in the early stage occupational assimilation of immigrants: some evidence from Australia," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4019-4035, November.
    2. Sarah Brown & Michael Dietrich & Aurora Ortiz & Karl Taylor, 2007. "Self-Employment and Risk Preference," Working Papers 2007008, The University of Sheffield, Department of Economics.
    3. Di Mauro, Carmela & Musumeci, Rosy, 2011. "Linking risk aversion and type of employment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 490-495.
    4. Brown, Sarah & Dietrich, Michael & Ortiz-Nuñez, Aurora & Taylor, Karl, 2011. "Self-employment and attitudes towards risk: Timing and unobserved heterogeneity," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 425-433, June.
    5. Dawson, Christopher & Henley, Andrew, 2012. "Gender, Risk and Venture Creation Intentions," IZA Discussion Papers 6947, Institute for the Study of Labor (IZA).
    6. Simon Parker, 2007. "Which firms do the entrepreneurs come from?," Economics Bulletin, AccessEcon, vol. 10(10), pages 1-9.
    7. repec:bla:abacus:v:53:y:2017:i:1:p:59-93 is not listed on IDEAS
    8. C Green & J S Heywood, 2007. "Does profit sharing increase training by reducing turnover?," Working Papers 589032, Lancaster University Management School, Economics Department.
    9. Haynes, Jonathan B. & Sessions, John G., 2013. "Work now, pay later? An empirical analysis of the pension–pay trade off," Economic Modelling, Elsevier, vol. 30(C), pages 835-843.
    10. Sari Pekkala Kerr & William R. Kerr & Tina Xu, 2017. "Personality Traits of Entrepreneurs: A Review of Recent Literature," NBER Working Papers 24097, National Bureau of Economic Research, Inc.
    11. repec:ebl:ecbull:v:10:y:2007:i:10:p:1-9 is not listed on IDEAS

    More about this item

    Keywords

    Risk Preference; Self-Employment; Performance Related Pay; Ordered Alternatives; OGEV model;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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