Recipient of the Arrow Prize for Junior Economists

A BEJEAP Advances article.

Abstract

Choosing a type of education is one of the largest financial decisions we make. Educational investment differs from other types of investment in that it is indivisible and non-tradable. These differences lead agents to demand a premium to enter careers with more idiosyncratic risk. Since the required premium will be smaller for wealthier agents, they will tend to enter careers with more idiosyncratic risk.

After developing a model of career choice, we use data from the Panel Study of Income Dynamics (PSID) to estimate the risk associated with different careers. We find education, health care, and engineering careers to have relatively safe streams of labor income; business, sales, and entertainment careers are more risky.

By choosing a college major, many students make a costly human capital investment that allows them to enter a specific career. To examine the link between wealth and college major choice implied by the model, we use data on choice of college major from the National Postsecondary Student Aid Survey (NPSAS). Controlling for observable measures of ability and background, we find evidence that wealthier students tend to choose riskier careers, particularly business.

Submitted: February 23, 2005 · Accepted: September 15, 2005 · Published: October 25, 2005

Originally published in Advances in Economic Analysis & Policy.

Recommended Citation

Saks, Raven E. and Shore, Stephen H. (2005) "Risk and Career Choice," Advances in Economic Analysis & Policy: Vol. 5 : Iss. 1, Article 7.
Available at: http://www.bepress.com/bejeap/advances/vol5/iss1/art7