Risk Aversion and Labor Supply : Evidence from Malaysian Households in the 1970s(Designated Research Projects)

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The purpose of this study is to examine empirically the effect of wage uncertainty on the labor supply of the risk averse household. Increasing wage uncertainty in the sense of mean preserving spread lowers the labor supply if the first-order condition for utility maximization with respect to labor is concave in the wage, and vice versa. Since the concavity is determined by the second and third derivatives of the utility function with respect to consumption, of which the former is negative and the latter is often positive, the direction of the effect of increasing uncertainty on the labor supply is generally ambiguous. Therefore, parameters of the utility function must be estimated in order to examine whether the first-order condition is concave or convex in the wage. In this study, the household utility function is estimated by the generalized method of moments (GMM), using the micro-data of the first Malaysian Family Life Survey that was implemented between 1976 and 1977. The number of households in the sample is 341, of which both male head and female head are engaged in jobs. The utility function is assumed to be additively separable between consumption, male labor and female labor each other. The constant relative risk aversion with respect to consumption, which is varied with some attributes of the household, is also assumed. The result of GMM estimation cannot reject the specification of the utility function and the assumption of rational expectations. The measure of relative risk aversion is well estimated and the value is slightly over the unity. Using the estimated parameters of the utility function, it is examined whether the estimated first-order conditions are concave or convex in the wages. On average and for more than three-quarters of the sample households, the first-order condition for male labor is concave in male hourly earnings. The first-order condition for female labor is also concave in female hourly earnings for most sample households. The first-order condition for male labor is convex in female hourly earnings and the first-order condition for female labor is convex in male hourly earnings because of the specification of the utility function. The following results are derived for these sample households. Increasing uncertainty in the sense of mean-preserving spread in male hourly earnings lowers the male labor supply and raises the female labor supply. Increasing uncertainty in the sense of mean-preserving spread in female hourly earnings lowers the female labor supply and raises the male labor supply.
桃山学院大学の論文
1999-09-30

Risk Aversion and Labor Supply : Evidence from Malaysian Households in the 1970s(Designated Research Projects)

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