Estimating the effect of stochastic health on employment, hours of work, and saving decisions

Abstract

The object of this paper is to examine the empirical relationship between individuals’ perceived health uncertainty, labor inputs, and saving decisions. Most existing empirical studies treat health status as a known variable to individuals, thereby omitting health uncertainty in context of labor market outcomes. We distinguish our study by assuming a precautionary motivation for risk-averse individuals, to work harder and save more when facing the uncertainty of their health condition. We test this hypothetical relationship by applying the data collected from the 2003–2005 Panel Study of Family Dynamics (PSFD) in Taiwan. The study result indicates that while uncertainty over the health condition would discourage people from joining the labor market, those who are already in the labor market will input more working hours to earn extra income for the future consumption. In addition, stochastic health has a positive and significant effect on saving decision. Key words: Health, stochastic health, labor supply, saving.The object of this paper is to examine the empirical relationship between individuals’ perceived health uncertainty, labor inputs, and saving decisions. Most existing empirical studies treat health status as a known variable to individuals, thereby omitting health uncertainty in context of labor market outcomes. We distinguish our study by assuming a precautionary motivation for risk-averse individuals, to work harder and save more when facing the uncertainty of their health condition. We test this hypothetical relationship by applying the data collected from the 2003–2005 Panel Study of Family Dynamics (PSFD) in Taiwan. The study result indicates that while uncertainty over the health condition would discourage people from joining the labor market, those who are already in the labor market will input more working hours to earn extra income for the future consumption. In addition, stochastic health has a positive and significant effect on saving decision. Key words: Health, stochastic health, labor supply, saving.