Occupational sorting of school leavers: The role of economic preferences

Didier Fouarge, ROA
Ben Kriechel, Maastricht University
Thomas J. Dohmen, ROA

Abstract

We measure economic preferences (risk attitudes and patience) of young individuals in a large representative survey of school leavers around the time that they start their labour market career and relate these preferences to the earnings risk and the steepness of the earnings profiles of the occupations they choose to work in. We find that the measures for risk and time preferences are systematically and significantly related to the riskiness and timing of earnings of occupations, which we derive from a large administrative data set: Young entrants who are risk seekers are significantly more likely to start their careers in occupations that are characterized by high earnings risk, a high mid-career earnings risk, a high level of cyclical sensitivity, and a high risk of unemployment. Likewise, patient individuals are significantly more likely to choose for occupations with a steep earnings profile. We also show that individuals who are badly sorted according to their preferences and the characteristics of their initial occupation are more likely to change to an occupation that better matches their economic preferences.