Risk Attitudes of Young Professionals Influence Job Changes and Wage Growth

The greater the risk aversion of employees, the less likely they are to change jobs in the first years of their professional careers. Yet, risk-averse young professionals tend to have only moderate wage gains in their early careers compared to more risk-tolerant employees who decide to change jobs in the beginning of their professional lives more often. These are the findings of a study conducted by the Centre for European Economic Research (ZEW), Mannheim. The study analyses whether risk attitudes of young professionals have any influence on the number of job changes and the subsequent wage development.

Changing jobs is associated with uncertainty. Although young professionals usually know which wage level they can expect from an advertised position, uncertainties remain regarding other working conditions, such as promotion opportunities, actual working hours as well as collaboration with co-workers. These aspects are all the more important as costs may arise when adapting to a new working environment or moving to a different place. Many young professionals are therefore unsure whether a job change actually pays off.

Risk attitudes as a crucial factor for the number of job changes

The ZEW study examined the connection between individual risk attitudes, job changes and resulting wage growth. On the basis of data from the German Socio-Economic Panel (SOEP), researchers investigated whether, and how often, young professionals change jobs of their own accord in their early careers. On average, less job changes were witnessed among risk-averse young professionals than among risk-tolerant individuals. Apart from risk attitudes, the only other factor influencing the frequency of job changes of young professionals is the entry wage level. Other factors such as age, satisfaction in the first job, or temporary contracts have no effect on job changes.

Risk-averse individuals experience higher wage increases with each job change but moderately higher overall wage growth

The findings of the study further indicate that a job change of a risk-averse employee is associated with a higher wage growth than a job change of a risk-tolerant individual. “The difference in wage growth can be explained by the fact that risk-averse employees demand higher wages in order to compensate for the uncertainties associated with each job change,” explains Dr. Michael Maier, a researcher in ZEW's Research Department “Labour Markets, Human Resources and Social Policy” and co-author of the study. “There are two conflicting explanations why wages of young professionals with different risk attitudes develop in different ways,” says Maier. “Since risk-averse individuals change jobs less frequently, they remain in the same company for a longer period of time. This allows them to gain more company-specific know-how, resulting in wage increases,” according to the ZEW researcher.  Employees which are prepared to take greater risks and change their job more often, on the other hand, are more likely to find positions that fit their professional skills in an optimal way. This in turn may also yield higher wages. The empirical investigation shows that wage gains of risk-averse individuals over the early career are only moderately higher than wage gains of risk-tolerant individuals

For further information please contact:

Dr. Michael F. Maier,, Phone: +49 (0)621/1235-307, E-mail: maier@zew.de