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How important is Intra-household Risk Sharing for Savings and Labor Supply?

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  • Salvador Ortigueira
  • Nawid Siassi

Abstract

While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who make collective decisions on consumption, savings and labor supplies. In a calibrated version of our model, we find that precautionary savings are only 55% of those generated by a similar economy that lacks access to insurance from the family. We also find that intra-household risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, in the group of households with wealth less than two months worth of income, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives’ hours makes up 9% of lost family income. We also find crowding out effects of public unemployment insurance that are comparable to those estimated from the data.

Suggested Citation

  • Salvador Ortigueira & Nawid Siassi, 2010. "How important is Intra-household Risk Sharing for Savings and Labor Supply?," Economics Working Papers ECO2010/36, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2010/36
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    References listed on IDEAS

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    Cited by:

    1. Aysit Tansel & Zeynel Abidin Ozdemir, 2016. "Unemployment Invariance Hypothesis, Added and Discouraged Worker Effects in Canada?," ERC Working Papers 1717, ERC - Economic Research Center, Middle East Technical University, revised Dec 2017.
    2. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    3. Rossi, Mariacristina & Trucchi, Serena, 2016. "Liquidity constraints and labor supply," European Economic Review, Elsevier, vol. 87(C), pages 176-193.
    4. Gravert, Jan Hendrik & Bredemeier, Christian & Jüßen, Falko, 2015. "Estimates of Labor-Supply Elasticities with Joint Borrowing Constraints of Couples," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113115, Verein für Socialpolitik / German Economic Association.
    5. Valladares-Esteban, Arnau & Choi, Sekyu, 2016. "On households and unemployment insurance," Discussion Paper Series In Economics And Econometrics 1508, Economics Division, School of Social Sciences, University of Southampton.
    6. repec:idb:idbbks:7677 is not listed on IDEAS
    7. Chunzan Wu & Dirk Krueger, 2018. "How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?," NBER Working Papers 24472, National Bureau of Economic Research, Inc.
    8. Lina Cardona-Sosa & Luz Adriana Flórez & Leonardo Morales Zurita, 2016. "Intra-household labour supply after an unemployment event: The added worker effect," Borradores de Economia 944, Banco de la Republica de Colombia.
    9. Guin, Benjamin, 2017. "Culture and household saving," Working Paper Series 2069, European Central Bank.
    10. Siassi, Nawid, 2014. "Inequality and the Marriage Gap," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100570, Verein für Socialpolitik / German Economic Association.
    11. Guler, Bulent & Taskin, Temel, 2013. "Does unemployment insurance crowd out home production?," European Economic Review, Elsevier, vol. 62(C), pages 1-16.
    12. repec:zbw:rwirep:0484 is not listed on IDEAS
    13. Christian Bredemeier, 2015. "Household Specialization and the Labor-Supply Elasticities of Women and Men," Working Paper Series in Economics 81, University of Cologne, Department of Economics.
    14. Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2017. "Families and social security," European Economic Review, Elsevier, vol. 91(C), pages 30-56.
    15. Fang Yang & Mariacristina De Nardi, 2016. "The Insurance Role of Marriage," 2016 Meeting Papers 427, Society for Economic Dynamics.
    16. Eduardo A. Cavallo & Tomás Serebrisky & Verónica Frisancho & Jonathan Karver & Andrew Powell & Diego Margot & Ancor Suárez-Alemán & Eduardo Fernández-Arias & Matías Marzani & Solange Berstein & Marian, 2016. "Saving for Development: How Latin America and the Caribbean Can Save More and Better," IDB Publications (Books), Inter-American Development Bank, number 94597 edited by Eduardo A. Cavallo & Tomás Serebrisky, February.
    17. Javier Fernandez-Blanco, 2017. "Unemployment Risks and Intra-Household Insurance," 2017 Meeting Papers 478, Society for Economic Dynamics.
    18. Bredemeier, Christian & Gravert, Jan & Juessen, Falko, 2016. "Estimating Labor-Supply Elasticities with Joint Borrowing Constraints of Couples," IZA Discussion Papers 10267, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Intra-household risk sharing; Collective household model; Idiosyncratic unemployment risk; Incomplete markets; Precautionary motive.;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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