Why Do Households Save and Work?

Margherita Borella, Mariacristina De Nardi, Johanna P. Torres Chain () and Fang Yang
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Johanna P. Torres Chain: https://cla.umn.edu/about/directory/profile/torre750

No 124, Opportunity and Inclusive Growth Institute Working Papers from Federal Reserve Bank of Minneapolis

Abstract: This paper quantifies why households save and work using a life-cycle model that incorporates wage risk, endogenous labor supply of both spouses, marital transitions, health, medical expenses, mortality, and bequest motives at the death of the first and last household member. We estimate it using PSID and HRS data and conduct counterfactuals to assess the quantitative role of individual mechanisms. Precautionary saving against wage risk is smaller than in models that abstract from labor supply and within-household insurance. Bequest motives and medical expenses remain important drivers of wealth, while marriage and divorce generate large but offsetting effects across household types.

Keywords: Households; Savings; Working; Precautionary saving (search for similar items in EconPapers)
JEL-codes: D10 D14 D31 E21 E23 (search for similar items in EconPapers)
Date: 2026-01-30
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https://www.minneapolisfed.org/institute/working-papers-institute/iwp124.pdf (application/pdf)

Related works:
Working Paper: Why Do Households Save and Work? (2025)
Working Paper: Why Do Households Save and Work? (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:102357

DOI: 10.21034/iwp.124

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