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Labor Supply Flexibility and Portfolio Choice: An Empirical Analysis

  • Hugo Benítez-Silva

    (SUNY at Stony Brook)

This paper uses panel data from the Health and Retirement Study to estimate the relationship between measures of labor supply flexibility and portfolio-choice decisions by utility-maximizing individuals. Seminal research on portfolio decisions over the lifecycle, and recent research on stochastic dynamic programming models with endogenous labor supply and savings decisions suggest that, other things equal, individuals with more labor supply flexibility are likely to invest more in risky assets, regardless of their age, because of the insurance component that flexible labor supply provides. After controlling for panel sample selection and unobserved heterogeneity I find that labor supply flexibility leads to holding between 12% and 14% more wealth in stocks.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp056.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp056.

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Length: 38 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:mrr:papers:wp056
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