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Keeping Up With the Joneses and Unemployment Risk

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  • Patrick Toche
  • Lyon

Abstract

This paper characterises the dynamic behaviour of a growing economy where individuals `keep up with the Joneses` and face uninsurable labour income risk. Idiosyncratic uncertainty about future labour income reduces the marginal propensity to consume out of financial wealth and raises the effective rate of discount in the aggregate consumption Euler equation. The higher the average rate of income growth, the higher the saving rate. If individuals have uncertain lifetimes, a higher mortality rate reduces the marginal propensity to consume out of wealth, and raises the ratio of marginal utilities between employment and unemployment.

Suggested Citation

  • Patrick Toche & Lyon, 2001. "Keeping Up With the Joneses and Unemployment Risk," Economics Series Working Papers 63, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:63
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    precautionary saving; comparison utility; consumption; growth;
    All these keywords.

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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