Unemployment Risk, Labour Force Participation and Savings

Gabriella Berloffa and Peter Simmons

The Review of Economic Studies, 2003, vol. 70, issue 3, 521-539

Abstract: This paper analyses labour force participation and precautionary savings in the presence of risks of being fired or failing to secure a job offer when out of the labour market. We use a finite horizon framework with two employment states and a stage utility function which is CARA in consumption but non-separable in leisure. The results are that there is precautionary labour force participation: employment risk lowers the reservation wage; generally it also reduces consumption. However due to the non-separability assumption, precautionary savings, as usually defined, may not be positive. We characterize the reservation wage and contrast the results with those in which the stage utility is additive in leisure and consumption. We extend the analysis to study the effects of cyclical variation in employment risk, of stochastic future wage rates, and of adding a third employment state of search. Copyright 2003, Wiley-Blackwell.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://hdl.handle.net/10.1111/1467-937X.00254 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Unemployment risk, labour force participation and savings (1999)
Working Paper: Unemployment Risk, Labour Force Participation and Savings
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:70:y:2003:i:3:p:521-539

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().