Do Private Income Transfers Increase Labor Market Risk?

15 Pages Posted: 10 Jul 2000

See all articles by Ralph Chami

Ralph Chami

International Monetary Fund (IMF)

Jeffrey H. Fischer

U.S. Federal Trade Commission (FTC)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1999

Abstract

Previous work on the effects of private income transfers has been confined to intra-family interactions. One implication of this work is that such transfers benefit recipients by insuring against labor market risks. Allowing for equilibrium labor market responses, however, one would expect the aggregate level of transfers to affect the distribution of wages across states of nature. In a two-state model of private income transfers with a labor market, we find that such transfers increase the volatility of wages. As a result, the equilibrium level of transfers exceeds the socially optimum level of transfers.

Keywords: Altruism, Asymmetric information, Wages, Nonmarket transactions

JEL Classification: D1, D64, D82, J3

Suggested Citation

Chami, Ralph and Fischer, Jeffrey H., Do Private Income Transfers Increase Labor Market Risk? (November 1999). Available at SSRN: https://ssrn.com/abstract=229258 or http://dx.doi.org/10.2139/ssrn.229258

Ralph Chami (Contact Author)

International Monetary Fund (IMF) ( email )

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Jeffrey H. Fischer

U.S. Federal Trade Commission (FTC) ( email )

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