Seminar: Paolo Falco, Department of Economics, Oxford University.

Risk-Aversion and Occupational Choices: Evidence from Matched Field Experiments and Survey Data in urban Ghana.

Abstract

This article investigates the role of risk-aversion in the allocation of workers between formal and informal jobs in Ghana. In my model risk-averse workers can opt between entering the free-entry informal sector and queuing for formal occupations. Conditional on identifying the riskier option, the model yields testable implications on the relationship between risk-aversion and workers’ allocation. My testing strategy proceeds in two steps. First, using the UPS panel dataset I estimate expected income uncertainty and I find it higher in the informal sector. Second, using experimental data to elicit risk-attitudes I estimate the effect of risk-aversion on occupational choices and I find that, in line with the first result, more risk-averse workers are more likely to queue for formal jobs and less likely to be in the informal sector. I conclude that attitudes to risk should feature more prominently in models of sector allocation and in the design of labour market policies, in particular when these aim to impact workers’ vulnerability to risk and uncertainty.