The B.E. Journal of Economic Analysis & Policy
Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra
Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine
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Most Downloaded Articles
- The Inheritance of Educational Inequality: International Comparisons and Fifty-Year Trends by Hertz, Tom/ Jayasundera, Tamara/ Piraino, Patrizio/ Selcuk, Sibel/ Smith, Nicole and Verashchagina, Alina
- IQ and Family Background: Are Associations Strong or Weak? by Björklund, Anders/ Hederos Eriksson, Karin and Jäntti, Markus
- Do Rising Top Income Shares Affect the Incomes or Earnings of Low and Middle-Income Families? by Thompson, Jeffrey P. and Leight, Elias
- Therapeutic Equivalence and the Generic Competition Paradox by Nabin, Munirul Haque/ Mohan, Vijay/ Nicholas, Aaron and Sgro, Pasquale M.
- Economic Decision-Making in Poverty Depletes Behavioral Control by Spears, Dean
Risk and Career Choice
Citation Information: Advances in Economic Analysis & Policy. Volume 5, Issue 1, ISSN (Online) 1538-0637, DOI: 10.2202/1538-0637.1414, October 2005
- Published Online:
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.