How Important Is Precautionary Labour Supply?

Oxford Economic Papers, Volume 70, Issue 3, July 2018, Pages 868–891, https://doi.org/10.1093/oep/gpx053

Posted: 18 Mar 2021

See all articles by Davud Rostam‐Afschar

Davud Rostam‐Afschar

University of Mannheim - Accounting and Taxation

Sebastian Schmitz

Free University of Berlin (FUB)

Robin Jessen

Free University of Berlin (FUB)

Date Written: 2018

Abstract

We quantify the importance of precautionary labour supply defined as the difference between hours supplied in the presence of risk and hours under perfect foresight. Using the German Socio-Economic Panel from 2001 to 2012, we estimate the effect of wage risk on labour supply and test for constrained adjustment of labour supply. We find that married men choose on average about 2.8% of their hours of work to shield against wage shocks. The effect is strongest for self-employed, who we find to be unconstrained in their hours choices, but also relevant for other groups with more persistent hours constraints. If the self-employed faced the same wage risk as the median civil servant, their hours of work would be reduced by 4.5%.

Keywords: labor supply, precautionary saving

JEL Classification: C23, D12, E21, J22

Suggested Citation

Rostam-Afschar, Davud and Schmitz, Sebastian and Jessen, Robin, How Important Is Precautionary Labour Supply? (2018). Oxford Economic Papers, Volume 70, Issue 3, July 2018, Pages 868–891, https://doi.org/10.1093/oep/gpx053 , Available at SSRN: https://ssrn.com/abstract=3778819

Davud Rostam-Afschar (Contact Author)

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

Robin Jessen

Free University of Berlin (FUB) ( email )

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

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