How important is intra-household risk sharing for savings and labor supply?

Salvador Ortigueira, Nawid Siassi

Research output: Contribution to journalArticle

16 Scopus citations

Abstract

While it is recognized that the family is a risk-sharing institution, little is known about the quantitative effects of this source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who decide on consumption, savings and labor supplies. In a calibrated version of our model we find that intra-household risk sharing has its largest impact among wealth-poor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, for low-wealth households, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives' hours makes up 9% of lost family income. We also study consumption losses upon an unemployment spell, precautionary savings and the crowding out effects of the public unemployment insurance program on the extent of risk sharing within the household.

Original languageEnglish (US)
Pages (from-to)650-666
Number of pages17
JournalJournal of Monetary Economics
Volume60
Issue number6
DOIs
StatePublished - Sep 1 2013

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Keywords

  • Idiosyncratic unemployment risk
  • Incomplete markets
  • Intra-household risk sharing
  • Multi-person households
  • Precautionary motive

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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