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The Effect of Health and Employment Risks on Precautionary Savings

  • Johannes Geyer

This paper extends the idea of using ex-ante risk measures in a model of precautionary savings by explicitly simulating future net-income risks. The uncertainty measure takes into account the interdependency of labour market status and health. The model is estimated for prime age males using the German Socio-Economic Panel Study for years 2001-2007. The empirical analysis is conducted using a measure for saving stocks and saving flows. The latter model allows to control for individual specific effects. I find evidence for precautionary savings in response to the uncertainty measures. The results are robust and stable across specifications. There is evidence for a share of precautionary wealth of about 14 to 17 percent.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.388093.de/dp1167.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1167.

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Length: 66 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1167
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