Author : Eric T. Swanson
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (11 download)
Book Synopsis Implications of Labor Market Frictions for Risk Aversion and Risk Premia by : Eric T. Swanson
Download or read book Implications of Labor Market Frictions for Risk Aversion and Risk Premia written by Eric T. Swanson and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to partially offset wealth shocks by varying hours of work can significantly alter the household's attitudes toward risk, as shown in Swanson (2012). In this paper, I analyze how frictional labor markets affect that analysis. Household risk aversion (as measured by willingness to pay to avoid a wealth shock) is higher: 1) in countries with more frictional labor markets, 2) in recessions, and 3) for households that have more difficulty finding a job. These predictions are consistent with empirical evidence from a variety of sources. Quantitatively, I show that labor market frictions in Europe are large enough to play a substantial contributing role to risk aversion in those countries. Nevertheless, labor markets in the U.S. and Europe are sufficiently flexible that risk aversion is much closer to the frictionless benchmark in Swanson (2012) than to traditional measures that assume labor is fixed.