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Saving for Retirement with Job Loss Risk

Author

Listed:
  • Grochulski, Borys

    () (Federal Reserve Bank of Richmond)

  • Zhang, Yuzhe

    () (Texas A&M University)

Abstract

This article studies a tractable theoretical model of optimal consumption and saving decisions with endogenous retirement. Particular attention is paid to the impact of an increase in the risk of losing one’s job on the optimal path of consumption and wealth accumulation. Even if one does not actually lose their job, an increase in the risk of a job loss is by itself sufficient to cause lower consumption, higher saving, and, through faster retirement, lower labor supply.

Suggested Citation

  • Grochulski, Borys & Zhang, Yuzhe, 2013. "Saving for Retirement with Job Loss Risk," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 45-81.
  • Handle: RePEc:fip:fedreq:00003
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    File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2013/q1/pdf/grochulski.pdf
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    References listed on IDEAS

    as
    1. Marcet, Albert & Obiols-Homs, Francesc & Weil, Philippe, 2007. "Incomplete markets, labor supply and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2621-2635, November.
    2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    3. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters,in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    4. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December.
    5. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    6. Farhi, Emmanuel & Panageas, Stavros, 2007. "Saving and investing for early retirement: A theoretical analysis," Journal of Financial Economics, Elsevier, vol. 83(1), pages 87-121, January.
    7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Frank N. Caliendo & Aspen Gorry & Sita Slavov, 2017. "Survival Ambiguity and Welfare," NBER Working Papers 23648, National Bureau of Economic Research, Inc.
    2. Frank N. Caliendo & Maria Casanova & Aspen Gorry & Sita Slavov, 2016. "The Welfare Cost of Retirement Uncertainty," NBER Working Papers 22609, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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