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How important is intra-household risk sharing for savings and labor supply?

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  • Salvador Ortigueira

    ()

  • Nawid Siassi

    ()

Abstract

While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who make collective decisions on consumption, savings and labor supplies. We find that intra-household risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, for low-wealth households, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives’ hours makes up 9% of lost family income. We also study the crowding out effects of public unemployment insurance on other sources of private insurance, and consumption losses upon an unemployment spell

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1132.

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Date of creation: Sep 2011
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Handle: RePEc:cte:werepe:we1132

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Keywords: Intra-household risk sharing; Collective household model; Idiosyncratic unemployment risk; Incomplete markets; Precautionary motive;

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Cited by:
  1. Guler, Bulent & Taskin, Temel, 2013. "Does unemployment insurance crowd out home production?," European Economic Review, Elsevier, vol. 62(C), pages 1-16.
  2. Julia Bredtmann & Sebastian Otten & Christian Rulff, 2014. "Husband’s Unemployment and Wife’s Labor Supply – The Added Worker Effect across Europe," Ruhr Economic Papers 0484, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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