Risk aversion and public sector employment

Abstract

AbstractThis study examines whether public sector workers are more risk averse than those in the private sector and, if so, whether risk‐averse individuals self‐select themselves into the public sector or public employees become more risk averse during their career. Drawing on portfolio theory that individuals assemble their asset portfolio that maximizes expected return within an acceptable level of risk, this study analyzes 6276 South Korean employees' portfolio selection behaviors from 2000 to 2017. Findings show that public employees are likely to hold safer assets while those in the private sector tend to own riskier assets. Such behavioral heterogeneity is witnessed at the time of their first entrance into each sector and remains constant over their career. These results indicate that public employees' risk aversion is primarily a consequence of their self‐selection, but their sector affiliation also plays a role in sustaining their risk aversion.