Labour Supply as a Buffer: Evidence from UK Households

38 Pages Posted: 30 May 2011

See all articles by Andrew Benito

Andrew Benito

Bank of England - Domestic Finance Division

Jumana Saleheen

Bank of England

Multiple version iconThere are 3 versions of this paper

Date Written: May 27, 2011

Abstract

This paper examines labour supply adjustment – both hours worked and participation decisions. The analysis focuses on the response of each to financial shocks, employing data from the British Household Panel Survey. Results suggest that employees whose financial situation deteriorates relative to what they expected, increase their labour supply in response. That response is consistent with models of self-insurance that incorporate labour supply flexibility. The shock reflects several factors including financial wealth and a partner’s employment situation. The response is significantly larger for those who change job, consistent with the importance of hours constraints within jobs. The propensity to participate in the labour market also appears to respond to the financial shock but that is somewhat less robust than the hours response.

Keywords: Labour supply, self-insurance.

JEL Classification: J22.

Suggested Citation

Benito, Andrew and Saleheen, Jumana, Labour Supply as a Buffer: Evidence from UK Households (May 27, 2011). Bank of England Working Paper No. 426, Available at SSRN: https://ssrn.com/abstract=1854383 or http://dx.doi.org/10.2139/ssrn.1854383

Andrew Benito

Bank of England - Domestic Finance Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom
020 7601 5212 (Phone)

Jumana Saleheen (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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