Precautionary Savings or Working Longer Hours?

Josep Pijoan-Mas

Review of Economic Dynamics, 2006, vol. 9, issue 2, 326-352

Abstract: This paper quantifies the macroeconomic implications of the lack of insurance against idiosyncratic labor market risk. I show that in a model economy calibrated to observed individual level data, households make ample use of work effort as a consumption smoothing mechanism. As a consequence, aggregate consumption is 0.6% lower, work effort is 18% higher and labor productivity is 12% lower than they would be in a complete markets setting. Not surprisingly, the welfare benefits of moving towards complete markets are very large. Accounting for the whole transition to the new complete markets steady state I find the welfare costs of market incompleteness above 16% of individual lifetime consumption. (Copyright: Elsevier)

Keywords: Incomplete Markets; Labor Supply; Precautionary Savings (search for similar items in EconPapers)
JEL-codes: C68 D31 E21 J22 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (156)

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Working Paper: Precautionary Savings or Working Longer Hours? (2005)
Working Paper: Precautionary Savings or Working Longer Hours? (2004)
Working Paper: Precautionary Savings or Working Longer Hours? (2003)
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DOI: 10.1016/j.red.2005.11.002

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