Implications of Labor Market Frictions for Risk Aversion and Risk Premia

Eric Swanson

No 1137, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to absorb shocks along both margins can greatly alter the household's attitudes toward risk, as shown by Swanson (2012a). The present paper analyzes how those results are affected by labor market frictions and shows that: 1) risk aversion is higher in recessions, 2) risk aversion is higher in more frictional labor markets, and 3) risk aversion is higher for households that are less employable. Quantitatively, labor market flow rates in the U.S. and other OECD countries are large relative to the discount rate, implying that the cost of labor market frictions is small because frictions only delay adjustment. Thus, the frictionless formulas in Swanson (2012a,b) appear to be very good approximations in frictional labor markets as well.

Date: 2013
New Economics Papers: this item is included in nep-dge and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2013/paper_1137.pdf (application/pdf)

Related works:
Journal Article: Implications of Labor Market Frictions for Risk Aversion and Risk Premia (2020)
Working Paper: Implications of Labor Market Frictions for Risk Aversion and Risk Premia (2019)
Working Paper: Implications of Labor Market Frictions for Risk Aversion and Risk Premia (2013)
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:red:sed013:1137

Access Statistics for this paper

More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().