The Effect of Health and Employment Risks on Precautionary Savings
68 Pages Posted: 29 Nov 2011
Date Written: November 1, 2011
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 labor 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.
Keywords: precautionary savings, health, employment, risks
JEL Classification: D91, E21
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