Precautionary wealth accumulation: evidence from Canadian microdata

Sule Alan

Canadian Journal of Economics, 2006, vol. 39, issue 4, 1105-1124

Abstract: This paper estimates the effect of labour income uncertainty on wealth accumulation using two data sources. Wealth information is obtained from the master files of the new Canadian Survey of Financial Security 1999 (SFS). Labour income risk proxies are constucted by industry using the Canadian Survey of Labour and Income Dynamics (SLID) between 1996 and 2001. The empirical results suggest the presence of a strong precautionary saving motive among Canadian households for broad definitions of wealth. Furthermore, consistent with the buffer-stock-saving model, the level of precautionary funds significantly increases when households face liquidity constraints.

Date: 2006
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