Precautionary Savings or WorkingLonger Hours?

• Josep Pijoan-Mas ^[1]
  1. [1] Centro de Estudios Monetarios y Financieros

     Centro de Estudios Monetarios y Financieros

     Madrid, España

     
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 11 (CEMFI Working Paper 0311 ,November 2003), 2003
• Idioma: inglés
• Enlaces
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• Resumen

  • This paper quantifies the macroeconomic implications of the lack of insurance against idiosyncratic labor market risk. I show that in a model economy calibrated to observed individual level data, households make ample use of work effort as a consumption smoothing mechanism. As a consequence, aggregate consumption is 0.6% lower, work effort is 18% higher and labor productivity is 12% lower than they would be in a complete markets setting. Not surprisingly, the welfare benefits of moving towards complete markets arevery large. Accounting for the whole transition to the new complete marketssteady state I find the welfare costs of market incompleteness above 16% of individual lifetime consumption.