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How important is precautionary labor supply?

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  • Jessen, Robin
  • Rostam-Afschar, Davud
  • Schmitz, Sebastian

Abstract

We quantify the importance of precautionary labor supply using data from the German Socio- Economic Panel (SOEP) for 2001-2012. We estimate dynamic labor supply equations augmented with a measure of wage risk. Our results show that married men choose about 2.5% of their hours of work or one week per year on average to shield against unpredictable wage shocks. This implies that about 26% of precautionary savings are due to precautionary labor supply. If self-employed faced the same wage risk as the median civil servant, their hours of work would reduce by 4%.

Suggested Citation

  • Jessen, Robin & Rostam-Afschar, Davud & Schmitz, Sebastian, 2016. "How important is precautionary labor supply?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 07-2016, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
  • Handle: RePEc:zbw:hohdps:072016
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    References listed on IDEAS

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    1. repec:gam:jrisks:v:6:y:2018:i:2:p:48-:d:143783 is not listed on IDEAS
    2. repec:kap:sbusec:v:51:y:2018:i:1:d:10.1007_s11187-017-9919-x is not listed on IDEAS

    More about this item

    Keywords

    Wage Risk; Labor Supply; Precautionary Saving; Life Cycle; Dynamic Panel Data;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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