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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 597:
Labor Supply and Saving under Uncertainty

Martin Floden ()

Abstract: This paper examines how variations in labor supply can be used to self-insure against wage uncertainty, and the impact of such self-insurance on precautionary saving. The analytical framework is a two-period model with saving and labor-supply decisions where preferences are consistent with balanced growth. The main findings are that (i) labor-supply flexibility raises precautionary saving when future wages are uncertain, and (ii) uncertainty about future wages raises current labor supply and reduces future labor supply.

Keywords: precautionary saving; prudence; labor supply; (follow links to similar papers)

JEL-Codes: D81; E21; (follow links to similar papers)

19 pages, April 22, 2005

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This paper is published as:
Floden, Martin, (2006), 'Labor Supply and Saving under Uncertainty', Economic Journal, Vol. 116, pages 721-737

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