Abstract
This article examines how variations in labour supply can be used to self-insure against wage uncertainty and the impact of such self-insurance on precautionary saving. The analytical framework is a two-period model with saving and labour-supply decisions, where preferences are consistent with balanced growth. The main findings are that (i) labour-supply flexibility raises precautionary saving when future wages are uncertain, and (ii) uncertainty about future wages raises current labour supply and reduces future labour supply.
