How Important is Precautionary Labor Supply?

37 Pages Posted: 8 Jul 2016

See all articles by Robin Jessen

Robin Jessen

Free University of Berlin (FUB)

Davud Rostam‐Afschar

University of Mannheim - Accounting and Taxation

Sebastian Schmitz

Free University of Berlin (FUB)

Date Written: June 2016

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%.

Keywords: Wage Risk, Labor Supply, Precautionary Saving, Life Cycle, Dynamic Panel Data

JEL Classification: D91, J22, C23

Suggested Citation

Jessen, Robin and Rostam-Afschar, Davud and Schmitz, Sebastian, How Important is Precautionary Labor Supply? (June 2016). SOEPpaper No. 850, Available at SSRN: https://ssrn.com/abstract=2806938 or http://dx.doi.org/10.2139/ssrn.2806938

Robin Jessen (Contact Author)

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

Davud Rostam-Afschar

University of Mannheim - Accounting and Taxation

Mannheim, 68131
Germany

HOME PAGE: http://rostam-afschar.de/

Sebastian Schmitz

Free University of Berlin (FUB)

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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