Download this Paper Open PDF in Browser

Labor Supply Flexibility and Portfolio Choice

31 Pages Posted: 9 Jun 2004  

Zvi Bodie

Boston University - Department of Finance & Economics

William F. Samuelson

Boston University - Department of Finance & Economics; National Bureau of Economic Research (NBER)

Date Written: July 1989

Abstract

This paper develops a model showing that people who have flexibility in choosing how much to work will prefer to invest substantially more of their money in risky assets than if they had no such flexibility. Viewed in this way, labor supply flexibility offers insurance against adverse investment outcomes. The model provides support for the conventional wisdom that the young can tolerate more risk in their investment portfolios than the old. The model has other implications for the study of household financial behavior over the life cycle. It implies that households will take account of the value of labor supply flexibility in deciding how much to invest in their own human capital and when to retire. At the macro level it implies that people will have a labor supply response to shocks in the financial markets.

Suggested Citation

Bodie, Zvi and Samuelson, William F., Labor Supply Flexibility and Portfolio Choice (July 1989). NBER Working Paper No. w3043. Available at SSRN: https://ssrn.com/abstract=227467

Zvi Bodie (Contact Author)

Boston University - Department of Finance & Economics ( email )

United States

HOME PAGE: http://www.zvibodie.com

William F. Samuelson

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
60
Rank
303,223
Abstract Views
1,794