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Risk Sharing and Commuting Among US Federal States

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  • Juessen, Falko

    ()
    (University of Wuppertal)

Abstract

Financial markets provide imperfect insurance of labor income risk. However, workers can partly insure against labor market risk by commuting to adjacent regions. Since commuters own wage claims to output produced in adjacent regions, the business cycle in the neighborhood becomes a relevant risk factor at the regional level. In our empirical analysis for US states, we show this effect to be important. State-specific consumption comoves with business cycle shocks that hit adjacent states, in particular if a state is integrated by commuter flows. This labor market perspective on regional risk sharing complements previous studies that investigated risk sharing through financial markets.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3374.

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Length: 20 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3374

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Keywords: risk sharing; consumption smoothing; commuting; labor market risk;

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  1. Demyanyk, Yuliya & Ostergaard, Charlotte & Sorensen, Bent E, 2006. "US Banking Deregulation, Small Businesses and Interstate Insurance of Personal Income," CEPR Discussion Papers 5863, C.E.P.R. Discussion Papers.
  2. Kalemli-Ozcan, S. & Sorensen, B.E. & Yosha, O., 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," Papers, Tel Aviv 16-99, Tel Aviv.
  3. Sascha O. Becker & Mathias Hoffmann, 2003. "Intra-and International Risk-Sharing in the Short Run and the Long Run," CESifo Working Paper Series 1111, CESifo Group Munich.
  4. Sorensen, Bent E & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2005. "Home Bias and International Risk Sharing: Twin Puzzles Separated at Birth," CEPR Discussion Papers 5113, C.E.P.R. Discussion Papers.
  5. DREZE, Jacques & GOLLIER, Christian, . "Risk sharing on the labour market and second-best wage rigidities," CORE Discussion Papers RP -1073, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Baxter, M. & Jermann, U.J., 1993. "The International Diversification Puzzle is Worse than you Think," RCER Working Papers 350, University of Rochester - Center for Economic Research (RCER).
  7. Lars-Erik Borge & Egil Matsen, 2004. "Public Employment and Regional Risk Sharing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 215-230, 06.
  8. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 928-56, October.
  9. Maurice Obstfeld., 1993. "Are Industrial-Country Consumption Risks Globally Diversified?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-014, University of California at Berkeley.
  10. Sorensen, B-E & Yosha, O, 1996. "International Risk Sharing and European Monetary Unification," Papers, Tel Aviv 40-96, Tel Aviv.
  11. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 957-76, October.
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