Risk Attitudes and Occupational Choice

In this paper we provide evidence that hints at a causal effect of risk preferences on occupational sorting. We exploit the fact that occupations in Ukraine differed only trivially in the earnings risk during Soviet times, but that differences in unexplained earnings risks across occupations evolved since the transition. We use data from the Ukrainian Longitudinal Monitoring Survey (ULMS), a representative panel study, to document that risk attitudes were not correlated with occupational earnings risk before the transition, while a significant positive correlation evolves after the transition. Importantly, this correlation is mainly brought about by workers who switch to occupations that are better aligned with their preferences. In particular, workers who are more willing to take risks switch to occupations with larger earnings variance, while those who are less willing to take risks change to occupations with lower earnings variance.