Do Private Income Transfers Increase Labor Market Risk?

Posted: 10 Jul 2000 Last revised: 22 Aug 2000

See all articles by Ralph Chami

Ralph Chami

International Monetary Fund (IMF)

Jeffrey H. Fischer

U.S. Federal Trade Commission (FTC)

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 Bequests Increase Labor Market Risk? (2000). Economics Letters, Vol. 69, 2000, Available at SSRN: https://ssrn.com/abstract=3072

Ralph Chami (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6039 (Phone)
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Jeffrey H. Fischer

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

600 Pennsylvania Ave., NW
Washington, DC 20580
United States
202-326-2656 (Phone)
202-326-2625 (Fax)

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