Are Public Sector Workers More Risk Averse Than Private Sector Workers?

Abstract

Available evidence suggests that stability of employment is greater in the public sector than in the private sector. The value that individuals place on this stability depends on the individual's degree of risk aversion. Economic reasoning suggests that, other things equal, those individuals with a high degree of aversion to risk will be more likely than others to seek employment in the public sector. This paper tests that hypothesis through the use of probit analysis and a measure of risk aversion developed in the University of Michigan's Panel Study of Income Dynamics. The results tend to confirm the hypothesis, implying that a policy of intersectoral equality of pay for comparable jobs would result in an excess supply of workers to the public sector.