IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp056.pdf
Download Restriction: no

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp056.

as
in new window

Length: 38 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:mrr:papers:wp056
Contact details of provider: Postal: P.O. Box 1248, Ann Arbor, MI 48104
Phone: (734) 615-0422
Fax: (734) 647-4575
Web page: http://www.mrrc.isr.umich.edu/publications/papers/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Blundell, Richard & Meghir, Costas, 1987. "Bivariate alternatives to the Tobit model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 179-200.
  2. John H. Cochrane, 1997. "Where is the market going? Uncertain facts and novel theories," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 3-37.
  3. Cocco, Joao & Gomes, Francisco & Maenhout, Pascal J. & Campbell, John Y. & Viceira, Luis Manuel, 2001. "Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor," Scholarly Articles 3353758, Harvard University Department of Economics.
  4. Carol Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).
  5. Harvey S. Rosen & Stephen Wu, 2003. "Portfolio Choice and Health Status," NBER Working Papers 9453, National Bureau of Economic Research, Inc.
  6. Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings 632, Econometric Society.
  7. B. Douglas Bernheim, 1984. "Dissaving After Retirement: Testing the Pure Life Cycle Hypothesis," NBER Working Papers 1409, National Bureau of Economic Research, Inc.
  8. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
  9. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
  10. Alan Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, . "Retirement Measures in the Health and Retirement Survey," Pension Research Council Working Papers 94-2, Wharton School Pension Research Council, University of Pennsylvania.
  11. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  12. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
  13. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1994. "Retirement Research Using the Health and Retirement Survey," NBER Working Papers 4813, National Bureau of Economic Research, Inc.
  14. Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
  15. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1994. "Income Risk, Borrowing Constraints and Portfolio Choice," CEPR Discussion Papers 888, C.E.P.R. Discussion Papers.
  16. Michael Hurd & Monika Reti, 2003. "The Effects of Large Capital Gains on Work and Consumption: Evidence from Four Waves of the HRS," Working Papers 03-14, RAND Corporation Publications Department.
  17. Verbeek, M.J.C.M. & Nijman, T.E., 1990. "Testing for selectivity bias in panel data models," Discussion Paper 1990-18, Tilburg University, Center for Economic Research.
  18. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
  19. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
  20. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
  21. Zvi Bodie & William Samuelson, 1989. "Labor Supply Flexibility and Portfolio Choice," NBER Working Papers 3043, National Bureau of Economic Research, Inc.
  22. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
  23. James M. Poterba & Andrew A. Samwick, 1997. "Household Portfolio Allocation Over the Life Cycle," NBER Working Papers 6185, National Bureau of Economic Research, Inc.
  24. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
  25. Svensson, L.E. & Werner, I., 1990. "Nontraded Assets in Incomplete Markets: Pricing and Portfolio Choices," Papers 477, Stockholm - International Economic Studies.
  26. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  27. James F. Moore & Olivia S. Mitchell, . "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers 98-1, Wharton School Pension Research Council, University of Pennsylvania.
  28. Nijman, Theo & Verbeek, Marno, 1992. "Nonresponse in Panel Data: The Impact on Estimates of a Life Cycle Consumption Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(3), pages 243-57, July-Sept.
  29. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
  30. Stefan Hochguertel, 2003. "Precautionary motives and portfolio decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 61-77.
  31. 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 188-94, March.
  32. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
  33. Anna Cristina d'Addio & Isabelle De Greef & Michael Rosholm, 2002. "Assessing Unemployment Traps in Belgium using Panel Data Sample Selection models," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C1-3, International Conferences on Panel Data.
  34. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
  35. Svensson, L.E.O., 1988. "Portfolio Choice And Asset Pricing With Nontraded Assets," Papers 417, Stockholm - International Economic Studies.
  36. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
  37. Fratantoni, Michael C., 1998. "Homeownership and Investment in Risky Assets," Journal of Urban Economics, Elsevier, vol. 44(1), pages 27-42, July.
  38. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  39. Dustmann, Christian & Rochina-Barrachina, María Engracia, 2000. "Selection Correction in Panel Data Models: An Application to Labour Supply and Wages," IZA Discussion Papers 162, Institute for the Study of Labor (IZA).
  40. Vella, F. & Verbeek, M.J.C.M., 1999. "Two-step estimation of panel data models with censored endogenous variables and selection bias," Other publications TiSEM 5aad87bc-25d1-49bc-882b-c, Tilburg University, School of Economics and Management.
  41. Vella, Francis & Verbeek, Marno, 1999. "Two-step estimation of panel data models with censored endogenous variables and selection bias," Journal of Econometrics, Elsevier, vol. 90(2), pages 239-263, June.
  42. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  43. Nijman, T.E. & Verbeek, M.J.C.M., 1992. "Testing for selectivity in panel data models," Other publications TiSEM 7ec34a6c-1d84-4052-971c-d, Tilburg University, School of Economics and Management.
  44. Hugo Benítez-Silva & Debra S. Dwyer, 2003. "What to Expect when you are Expecting Rationality: Testing Rational Expectations using Micro Data," Working Papers wp037, University of Michigan, Michigan Retirement Research Center.
  45. Hamish Low, 1999. "Self-insurance and unemployment benefit in a life-cycle model of labour supply and savings," IFS Working Papers W99/24, Institute for Fiscal Studies.
  46. Alessie, Rob & Lusardi, Annamaria & Kapteyn, Arie, 1999. "Saving after retirement: evidence from three different surveys," Labour Economics, Elsevier, vol. 6(2), pages 277-310, June.
  47. Nijman, T.E. & Verbeek, M.J.C.M., 1992. "Non-response in panel data : The impact on estimates of a life cycle consumption function," Other publications TiSEM 3c661e33-2cd1-47f1-a7d9-3, Tilburg University, School of Economics and Management.
  48. Kyriazidou, Ekaterini, 2001. "Estimation of Dynamic Panel Data Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 543-72, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp056. 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: (MRRC Administrator)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.