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Labour Supply and Saving Under Uncertainty

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  • Martin Flodén

Abstract

This article examines how variations in labour supply can be used to self-insure against wage uncertainty and the impact of such self-insurance on precautionary saving. The analytical framework is a two-period model with saving and labour-supply decisions, where preferences are consistent with balanced growth. The main findings are that (i) labour-supply flexibility raises precautionary saving when future wages are uncertain, and (ii) uncertainty about future wages raises current labour supply and reduces future labour supply. Copyright 2006 The Author. Journal compilation Royal Economic Society 2006.

Suggested Citation

  • Martin Flodén, 2006. "Labour Supply and Saving Under Uncertainty," Economic Journal, Royal Economic Society, vol. 116(513), pages 721-737, July.
    • Handle: RePEc:ecj:econjl:v:116:y:2006:i:513:p:721-737
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    References listed on IDEAS

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    Cited by:

    1. Marika Karanassou & Hector Sala & Dennis Snower, 2007. "The macroeconomics of the labor market: three fundamental views," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 151-180, December.
    2. Christoph Heinzel & Richard Peter, 2021. "Precautionary motives with multiple instruments [Motifs de précaution en cas de multiples instruments]," Working Papers hal-03484875, HAL.
    3. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.
    4. Yeonggyu Yun & Hye-Young Jung, 2020. "Effects of Uncertainty Shocks on Household Consumption and Working Hours: A Fuzzy Cognitive Map-Based Approach," Mathematics, MDPI, vol. 8(6), pages 1-13, June.
    5. Danziger, Leif, 2009. "Noncompliance and the effects of the minimum wage on hours and welfare in competitive labor markets," Labour Economics, Elsevier, vol. 16(6), pages 625-630, December.
    6. Heinzel Christoph & Richard Peter, 2021. "Precautionary motives with multiple instruments," Working Papers SMART 21-09, INRAE UMR SMART.
    7. Heinzel, Christoph & Peter, Richard, 2021. "Precautionary motives with multiple instruments," Working Papers 316521, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    8. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2013. "Universal vs separated banking with deposit insurance in a macro model," Discussion Papers 1308, University of Exeter, Department of Economics.
    9. Pierre Pora & Lionel Wilner, 2017. "The individual dynamics of wage income in France during the crisis," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 494-495-4, pages 179-199.
    10. Hugo Benitez-Silva, 2001. "A Dynamic Model of Job Search Behavior over the Life Cycle with Empirical Applications," Computing in Economics and Finance 2001 100, Society for Computational Economics.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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