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Occupational Choice under Uncertainty
Aloysius Siow
Abstract
An econometric problem in estimating models of occupational choice is that the agents' forecasts of future wages and occupational tenure are unobservable. This paper solves the problem by assuming that agents have rational expectations and by considering the effects of arbitrage both within and between cohorts. The solution consists of two time series regressions of the demand and supply functions of entrants into an occupation. From these regressions one obtains estimates of the rate of return to education, the direct cost of education, and other parameters that influence the market. The model was estimated with data from the market for lawyers.
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