The effect of risk preference on choice between public and private sector employment in indonesia

This study explores the role of risk aversion on an individual’s occupational choice. It examines the effect of individual risk aversion using the choice between public and private sector employment in Indonesia. Public sector employment is considered relatively more secure than private sector work. The risk aversion of workers was observed and elicited using hypothetical gambling questions from the Indonesian Family Life Survey (IFLS). The findings were analyzed using the Probit model. The results show that more risk-tolerant workers choose the private sector. Those with higher education levels had more individual risk aversion. The findings suggest there may be a need to attract less risk-averse individuals to the public sector in Indonesia. This could be accomplished through a revised recruitment process or by equalizing the level of job security between the public and private sectors.