The Importance of Risk Attitudes on Job Changing Behaviour: Evidence from the Young

Abstract: Voluntary job changes are a means to increase labour income or escape bad employer-employee matches, increasing utility eventually. Changing the employer is a decision under uncertainty and has potential long-term consequences for the worker's labour market position, especially when the decision is made during the early career. Uncertainty essentially makes the individual attitudes toward risk-taking a crucial component in the decision-making process. I first apply an on-the-job search model based on Jovanovic (1979) and Mortensen (1986) which I adjust in a manner that individuals risk attitudes are taken into account. Estimating the model using the representative German panel data set SOEP, I look at the role that individual risk attitudes play in association with voluntary job changes. I focus on voluntary job changes because the relationship between involuntary changes and risk attitudes is less obvious. This study is different from previous research in that it only considers the individuals' adolescent risk attitudes and their early career on the labour market. Overall, risk averse individuals change job less often and experience lower wage growth than risk tolerant individuals within the first seven years on the labour market. In a concluding discussion I present various possible channels by which my findings might come through.