In recent years, work time in many industries has become increasingly flexible. A new GLO Discussion Paper studies the resulting consequences for intertemporal substitution in individual households.
The Global Labor Organization (GLO) is an independent, non-partisan and non-governmental organization that functions as an international network and virtual platform to stimulate global research, debate and collaboration.
GLO Discussion Paper No. 493, 2020
Flexible Work Arrangements and Precautionary Behavior: Theory and Experimental Evidence – Download PDF
by Orland, Andreas & Rostam-Afschar, Davud
GLO Fellow Davud Rostam-Afschar
Abstract: In the past years, work time in many industries has become increasingly flexible opening up a new channel for intertemporal substitution. To study this, we set up a two-period model with wage uncertainty. This extends the standard savings model by allowing a worker to allocate a fixed time budget between two work-shifts or to save. To test the existence of these channels, we conduct laboratory consumption/saving experiments. A novel feature of our experiments is that we tie them to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our four main findings are: (i) subjects exercise more effort under certainty than under risk; (ii) savings are strictly positive for at least 85 percent of subjects (iii) a majority of subjects uses time allocation to smooth consumption; (iv) saving and time shifting are substitutes, though not perfect substitutes.
GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS, EconPapers). Complete list of all GLO DPs – downloadable for free.