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Risk and Return Trade-Offs in Lifetime Earnings

Author

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  • Eleanor W. Dillon
Abstract
This paper documents differences in lifetime earnings risk across occupations due to wage risk, employment risk, and midcareer occupation changes, which can mitigate other shocks. Total lifetime earnings risk varies considerably across starting occupation, and riskier occupations pay more in expectation. The average worker would give up at least 9% of total lifetime earnings in the least certain occupation to reduce the riskiness of that occupation to the level of the safest starting occupation. The insurance value of occupational mobility is quantitatively important. With mobility, workers absorb only 60%, on average, of negative occupation-specific wage shocks.

Suggested Citation

  • Eleanor W. Dillon, 2018. "Risk and Return Trade-Offs in Lifetime Earnings," Journal of Labor Economics, University of Chicago Press, vol. 36(4), pages 981-1021.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/697475
    DOI: 10.1086/697475
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    3. d’Astous, Philippe & Shore, Stephen H., 2024. "Programs of study and earnings dynamics," Labour Economics, Elsevier, vol. 88(C).
    4. Edin, Per-Anders & Selin, Håkan, 2022. "Financial Risk-Taking and the Gender Wage Gap," Labour Economics, Elsevier, vol. 75(C).
    5. Gänser-Stickler, Gertraud M. & Schulz, Matthias & Schwens, Christian, 2022. "Sitting on the fence - Untangling the role of uncertainty in entrepreneurship and paid employment for hybrid entry," Journal of Business Venturing, Elsevier, vol. 37(2).
    6. Patnaik, Arpita & Venator, Joanna & Wiswall, Matthew & Zafar, Basit, 2022. "The role of heterogeneous risk preferences, discount rates, and earnings expectations in college major choice," Journal of Econometrics, Elsevier, vol. 231(1), pages 98-122.
    7. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Maarten van Rooij, 2020. "Consumption Uncertainty and Precautionary Saving," The Review of Economics and Statistics, MIT Press, vol. 102(1), pages 148-161, March.
    8. Arpita Patnaik & Matthew J. Wiswall & Basit Zafar, 2020. "College Majors," NBER Working Papers 27645, National Bureau of Economic Research, Inc.

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