Autori
Berloffa, Gabriella
Simmons, Peter

Titolo
Unemployment risk, labour force partecipation and savings
Periodico
Università degli studi di Trento. Dipartimento di Economia. Discussion papers
Anno: 1999 - Fascicolo: 2 - Pagina iniziale: 1 - Pagina finale: 55

We examine the effect of unemployment risk on savings and labour force participation in a multiperiod framework. Preferences are time additive but nonseperable within a period between leisure and consumption; in fact we take a generalised CARA form which allows us to find explicit solutions aver a finite horizon. Each period there are chances of finding an acceptable job offer if the worker is out of the labour force or searching for a job, and a risk of being fired for the employed. We find that if current employment status affects the chance of employment being available in the future, then the current reservation wage is lower; individuals may work today to preserve future employment opportunities. The nonseperability between leisure and consumption leads to high variability of optimal consumption, lower precautionary savings and a lower buffer stock of wealth than would be the case under seperable preferences. There are quite complex links between savings and the reservation wage; generally the possibility of transferring resources through time reduces the reservation wage. We provide some simulations calibrated on a sample from the BHPS to assess the magnitude of these effects.




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