IDEAS home Printed from https://ideas.repec.org/a/oup/restud/v70y2003i3p521-539.html
   My bibliography  Save this article

Unemployment Risk, Labour Force Participation and Savings

Author

Listed:
  • Gabriella Berloffa
  • Peter Simmons

Abstract

This paper analyses labour force participation and precautionary savings in the presence of risks of being fired or failing to secure a job offer when out of the labour market. We use a finite horizon framework with two employment states and a stage utility function which is CARA in consumption but non-separable in leisure. The results are that there is precautionary labour force participation: employment risk lowers the reservation wage; generally it also reduces consumption. However due to the non-separability assumption, precautionary savings, as usually defined, may not be positive. We characterize the reservation wage and contrast the results with those in which the stage utility is additive in leisure and consumption. We extend the analysis to study the effects of cyclical variation in employment risk, of stochastic future wage rates, and of adding a third employment state of search. Copyright 2003, Wiley-Blackwell.

Suggested Citation

  • Gabriella Berloffa & Peter Simmons, 2003. "Unemployment Risk, Labour Force Participation and Savings," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 521-539.
  • Handle: RePEc:oup:restud:v:70:y:2003:i:3:p:521-539
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/1467-937X.00254
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wolfgang Nagl, 2012. "Better Safe than Sorry? The Effects of Income Risk, Unemployment Risk and the Interaction of these Risks on Wages," ifo Working Paper Series 148, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Peter Simmons, 2010. "Effects of Structural Constraints and Costs on Choices," LABOUR, CEIS, vol. 24(s1), pages 25-45, December.
    3. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    4. Viola Angelini & Peter Simmons, "undated". "Housing Debt and Consumption," Discussion Papers 11/20, Department of Economics, University of York.
    5. Carolina Fugazza, 2012. "Employment Risk over the Life Cycle," Carlo Alberto Notebooks 280, Collegio Carlo Alberto.
    6. Lammers, Marloes, 2014. "The effects of savings on reservation wages and search effort," Labour Economics, Elsevier, vol. 27(C), pages 83-98.
    7. Wolfgang Nagl, 2014. "Better Safe than Sorry? The Effects of Income Risk and Unemployment Risk on Wages," LABOUR, CEIS, vol. 28(3), pages 251-268, September.
    8. Wolfgang Nagl, 2014. "Lohnrisiko und Altersarmut im Sozialstaat," ifo Beitr├Ąge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 54.
    9. Angelini, Viola, 2009. "Consumption and habit formation when time horizon is finite," Economics Letters, Elsevier, vol. 103(2), pages 113-116, May.
    10. Viola Angelini & Peter Simmons, "undated". "Housing Debt, Employment Risk and Consumption," Discussion Papers 05/07, Department of Economics, University of York.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:70:y:2003:i:3:p:521-539. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.