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Life-Cycle Portfolios, Unemployment and Human Capital Loss

Author

Listed:
  • Fabio C. Bagliano
  • Carolina Fugazza
  • Giovanna Nicodano

Abstract

The recent Great Recession highlighted that long-term unemployment spells may entail persistent losses in workers’ human capital. This paper extends the life-cycle model of savings and portfolio choice with unemployment risk, by allowing the possibility of permanent reductions in expected earnings following long-term unemployment. The optimal risky portfolio share becomes flat in age due to the resolution of uncertainty about future returns to human capital that occurs as the worker ages. This may help explaining the observed relatively flat, or only moderately increasing, risky share of investors during working life, and have important consequences for the design of optimal life-cycle portfolios by investment funds. D15, E21, G11

Suggested Citation

  • Fabio C. Bagliano & Carolina Fugazza & Giovanna Nicodano, 2018. "Life-Cycle Portfolios, Unemployment and Human Capital Loss," Carlo Alberto Notebooks 577, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:577
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    Cited by:

    1. Holzmann, Robert & Ayuso, Mercedes & Alaminos, Estefanía & Bravo, Jorge Miguel, 2019. "Life Cycle Saving and Dissaving Revisited across Three-Tiered Income Groups: Starting Hypotheses, Refinement through Literature Review, and Ideas for Empirical Testing," IZA Discussion Papers 12655, Institute of Labor Economics (IZA).
    2. Marina Malkina, 2019. "Determinants of Private Savings in the Form of Bank Deposits: A Case Study on Regions of the Russian Federation," Economies, MDPI, vol. 7(2), pages 1-22, June.
    3. Bagliano, Fabio C. & Fugazza, Carolina & Nicodano, Giovanna, 2021. "Life-cycle welfare losses from rules-of-thumb asset allocation," Economics Letters, Elsevier, vol. 198(C).
    4. Branger, Nicole & Larsen, Linda Sandris & Munk, Claus, 2019. "Hedging recessions," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.

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    More about this item

    Keywords

    life-cycle portfolio choice; unemployment risk; human capital depreciation; age rule.;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • I20 - Health, Education, and Welfare - - Education - - - General

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