IDEAS home Printed from https://ideas.repec.org/a/red/issued/v8y2005i4p945-975.html
   My bibliography  Save this article

Self-Insurance in a Life-Cycle Model of Labor Supply and Savings

Author

Listed:
  • Hamish Low

    (University of Cambridge)

Abstract

This paper analyses the incentives to work and to save over the life-cycle in the presence of incomplete markets. In a calibrated, partial equilibrium model, flexibility in hours worked changes asset age-profiles: borrowing when young is greater and saving when middle-aged is greater than when labor supply is fixed. Uncertainty causes individuals to work longer hours and to consume less when young. With flexibility over hours, accumulating precautionary assets incurs less of a utility cost and so the level of saving is greater. Further, allowing for flexibility and uncertainty means simulated hours of work and consumption more closely match the age profiles in the data. (Copyright: Elsevier)

Suggested Citation

  • Hamish Low, 2005. "Self-Insurance in a Life-Cycle Model of Labor Supply and Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 945-975, October.
  • Handle: RePEc:red:issued:v:8:y:2005:i:4:p:945-975
    DOI: 10.1016/j.red.2005.03.002
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1016/j.red.2005.03.002
    File Function: Full text
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and ScienceDirect institutional members. See http://www.sciencedirect.com/ for details.

    File URL: https://libkey.io/10.1016/j.red.2005.03.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    References listed on IDEAS

    as
    1. Richard Blundell & Martin Browning & Costas Meghir, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 57-80.
    2. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    3. Attanasio, Orazio P, et al, 1999. "Humps and Bumps in Lifetime Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 22-35, January.
    4. Orazio Attanasio & Hamish Low & Virginia Sánchez-Marcos, 2008. "Explaining Changes in Female Labor Supply in a Life-Cycle Model," American Economic Review, American Economic Association, vol. 98(4), pages 1517-1552, September.
    5. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-1157, December.
    6. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-951, July.
    7. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    8. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
    9. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 818-857, August.
    10. Christopher D. Carroll, 1994. "How does Future Income Affect Current Consumption?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 111-147.
    11. B. Douglas Bernheim, 1987. "Dissaving after Retirement: Testing the Pure Life Cycle Hypothesis," NBER Chapters, in: Issues in Pension Economics, pages 237-280, National Bureau of Economic Research, Inc.
    12. Bodie, Zvi & Shoven, John B. & Wise, David A. (ed.), 1987. "Issues in Pension Economics," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226062846, July.
    13. Heckman, James J, 1974. "Life Cycle Consumption and Labor Supply: An Explanation of the Relationship Between Income and Consumption Over the Life Cycle," American Economic Review, American Economic Association, vol. 64(1), pages 188-194, March.
    14. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    15. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
    16. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
    17. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, June.
    18. Christopher D. Carroll & Lawrence H. Summers, 1991. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Chapters, in: National Saving and Economic Performance, pages 305-348, National Bureau of Economic Research, Inc.
    19. Shoven, John B. & Bernheim, B. Douglas (ed.), 1991. "National Saving and Economic Performance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226044040, July.
    20. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2, June.
    21. Blundell, Richard & Meghir, Costas & Neves, Pedro, 1993. "Labour supply and intertemporal substitution," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 137-160, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hugo Benitez-Silva, 2000. "A Dynamic Model Of Labor Supply, Consumption/Saving, And Annuity Decisions Under Uncertainty," Computing in Economics and Finance 2000 128, Society for Computational Economics.
    2. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    3. Hugo Benítez-Silva, 2003. "The Annuity Puzzle Revisited," Working Papers wp055, University of Michigan, Michigan Retirement Research Center.
    4. Mark Aguiar & Erik Hurst, 2013. "Deconstructing Life Cycle Expenditure," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 437-492.
    5. Hugo Benitez-Silva, 2000. "A Joint Model of Labor Supply and Consumption Decisions Under Uncertainty," Econometric Society World Congress 2000 Contributed Papers 0196, Econometric Society.
    6. James P. Ziliak & Thomas J. Kniesner, 2005. "The Effect of Income Taxation on Consumption and Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 769-796, October.
    7. 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.
    8. Feigenbaum James A. & Li Geng, 2012. "Life Cycle Dynamics of Income Uncertainty and Consumption," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-49, May.
    9. Jesus Fernández-Villaverde & Dirk Krueger, 2007. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 552-565, August.
    10. Agnes Kovacs & Hamish Low & Patrick Moran, 2021. "Estimating Temptation And Commitment Over The Life Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 101-139, February.
    11. Wong, Arlene, 2014. "Population Aging and the Aggregate Effects of Monetary Policy," MPRA Paper 57096, University Library of Munich, Germany.
    12. Thomas H. Jørgensen, 2014. "Life-Cycle Consumption and Children," CAM Working Papers 2014_02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    13. Francesca Parodi, 2020. "Taxation of Consumption and Labor Income: a Quantitative Approach," Carlo Alberto Notebooks 609, Collegio Carlo Alberto.
    14. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    15. Caliendo, Frank & Aadland, David, 2007. "Short-term planning and the life-cycle consumption puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1392-1415, April.
    16. van de Ven, Justin, 2011. "A structural dynamic microsimulation model of household savings and labour supply," Economic Modelling, Elsevier, vol. 28(4), pages 2054-2070, July.
    17. repec:pit:wpaper:230 is not listed on IDEAS
    18. Bullard, James & Feigenbaum, James, 2007. "A leisurely reading of the life-cycle consumption data," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2305-2320, November.
    19. Attanasio, Orazio P., 1995. "The intertemporal allocation of consumption: theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 39-56, June.
    20. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    21. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.

    More about this item

    Keywords

    precautionary saving; life-cycle labor supply;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    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:red:issued:v:8:y:2005:i:4:p:945-975. 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: . General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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.