Labour Supply and Saving Under Uncertainty

Martin Flodén

Economic Journal, 2006, vol. 116, issue 513, 721-737

Abstract: This article examines how variations in labour supply can be used to self-insure against wage uncertainty and the impact of such self-insurance on precautionary saving. The analytical framework is a two-period model with saving and labour-supply decisions, where preferences are consistent with balanced growth. The main findings are that (i) labour-supply flexibility raises precautionary saving when future wages are uncertain, and (ii) uncertainty about future wages raises current labour supply and reduces future labour supply. Copyright 2006 The Author. Journal compilation Royal Economic Society 2006.

Date: 2006
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