The Impact of Labour Income Risk on Household Saving Decisions in Turkey (Turkiye'de Isgucu Geliri Riskinin Hanehalki Tasarruf Kararlari Uzerindeki Etkisi)

I analyse the Household Budget Surveys prepared by the Turkish Statistical Institute (TURKSTAT) to reveal the empirical importance of precautionary saving in Turkey. The most difficult aspect of the empirical analysis is the approximation of labour income risk as a proxy variable for future labour income uncertainty. Individual disposable income is interacted with the probability of being unemployed and with the probability of job-loss in the next period to generate the labour income risk variables. The econometric results support the precautionary saving hypothesis and labour income risk emerges as one of the main determinants of household saving decisions. Moreover, households implement alternative strategies to smooth their income streams such as holding a second job and increasing the number of income earners in the family. However, it is observed that they are still vulnerable against labour income risk, which underlines the need for a satisfactory social security system.