Identifying Idiosyncratic Career Taste and Skill with Income Risk

51 Pages Posted: 22 Jun 2013

See all articles by Stephen H. Shore

Stephen H. Shore

Georgia State University

Daniel Barth

Board of Governors of the Federal Reserve System

Shane Jensen

University of Pennsylvania - Statistics Department

Date Written: June 6, 2013

Abstract

How important to well-being is choosing a career with the right fit? This question is difficult to answer because we observe individuals only in their chosen careers, not in the other (presumably inferior) options they did not choose. To overcome this problem, we use expected utility to cardinalize a logit model of career choice in a setting where we observe the income risk of chosen careers and the risk-aversion of the people who choose them. The key parameter of interest - the importance of idiosyncratic taste and skill in career choice - is identified from the shift in the distribution of income risk with risk aversion. We estimate the model using individual-specific measures of income volatility to proxy for income risk and survey questions about hypothetical income gambles to proxy for risk preference, both from the PSID. We separate idiosyncratic career taste from skill using the pay gap between highand low-income risk people with high and low risk-aversion.

Keywords: occupational choice, career choice, income risk, idiosyncratic taste and skill

JEL Classification: J24

Suggested Citation

Shore, Stephen H. and Barth, Daniel and Jensen, Shane, Identifying Idiosyncratic Career Taste and Skill with Income Risk (June 6, 2013). Andrew Young School of Policy Studies Research Paper Series No. 13-10, Available at SSRN: https://ssrn.com/abstract=2283154 or http://dx.doi.org/10.2139/ssrn.2283154

Stephen H. Shore (Contact Author)

Georgia State University ( email )

35 Broad Street
11th Floor
Atlanta, GA 30303-3083
United States

Daniel Barth

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Shane Jensen

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

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