Centrum Analiz Ekonomicznych

Working Paper 01/11

The effect of health and employment risks on precautionary savings

Johannes Geyer

Abstract:

This paper extends the idea of using ex-ante risk measures in a model of precautionary savings by explicitly simulating future net-income risks. The uncertainty measure takes into account the interdependency of labour market and health status. The model is estimated for prime age males using the German Socio-Economic Panel Study for years 2001-2007. The empirical analysis is conducted using a measure for savings stocks and savings flows. The latter model allows to control for individual specific effects. We find evidence for precautionary savings in response to the uncertainty measures. The results are robust and stable across specifications. There is evidence for a share of precautionary wealth of about 14 to 17 percent.

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