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Flexible work arrangements and precautionary behavior: Theory and experimental evidence

Andreas Orland () and Davud Rostam-Afschar

Journal of Economic Behavior & Organization, 2021, vol. 191, issue C, 442-481

Abstract: In the past years, work-time in many industries has become more flexible, opening up a new channel for intertemporal substitution: workers might, instead of saving, adjust their work-time to smooth consumption. To study this channel, we set up a two-period consumption/saving model with wage uncertainty. This extends the standard saving model by also allowing a worker to allocate a fixed time budget between two work-shifts. To test the comparative statics implied by these two different channels, we conduct a laboratory experiment. A novel feature of our experiments is that we tie income to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our main finding is that savings are strictly positive for at least 85 percent of subjects. We find that a majority of subjects also uses time allocation to smooth consumption and use saving and time shifting as substitutes, though not perfect substitutes. Part of the observed heterogeneity of precautionary behavior can be explained by risk preferences and motivations different from expected utility maximization.

Keywords: Precautionary saving; Labor supply; Intertemporal substitution; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D14 D81 E21 J22 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Flexible Work Arrangements and Precautionary Behavior: Theory and Experimental Evidence (2020) Downloads
Working Paper: Flexible work arrangements and precautionary behaviour: Theory and experimental evidence (2020) Downloads
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DOI: 10.1016/j.jebo.2021.09.015

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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