Are upper-secondary track decisions risky? Evidence from Sweden on the assumptions of risk-aversion models

Abstract

Relative risk aversion (RRA) models explain social class inequalities in education with risk avoidance, i.e., the risky choice assumption (RCA). This assumption concerns risks related to more ambitious educational choices and has been subject to little explicit scrutiny. In this paper, we test whether or not vocational education is a safety net that protects from labor market marginalization. We present an empirical assessment of upper-secondary track choices in Sweden, contrasting the vocational and the academic tracks for those not pursuing tertiary educational degrees. We use Swedish administrative data for all siblings born 1972–1980 and fit sibling fixed effects models netting out unobserved time-constant confounders. The only evidence in favor of the RCA is that when considering selection, graduates of the academic track without a tertiary degree initially face higher risks of not being stably employed and registered as unemployed in their early 20s than their counterparts from vocational education. However, the academic tracks significantly protect men from the threat of entering unskilled routine occupations. We conclude that the support for the RCA is scant at best.