Occupational Choice and Incentives: the role of family background

A model of occupational choice and human capital investment is developed and tested. The model allows family background to in‡uence occupational choice via access to economic resources, di¤erences in costs of schooling, and ability uncertainty. The model predicts that people are more sensitive to economic incentives when considering occupations that are di¤erent from the parental occupation. It also predicts that the occupational choice of individuals from poor background is more sensitive to economic incentives than the occupational choice of well o¤ individuals. These implications are con...rmed on Swedish data using a mixed multinomial logit framework, explicitly accounting for unobserved heterogeneity.