Cover: Assets, Savings, and Labor Supply

Assets, Savings, and Labor Supply

by James P. Smith

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Using a life cycle model, this paper explores the relationship between asset ownership and market work. Demand equations are derived for the time and goods required in home production at every adult age. These demand equations are used to specify a savings function. The savings function is tested on 1967 Survey of Economic Opportunity data using as regressors wage rates of family members, and number of children under 7. Highly consistent results support the hypothesis that work hours and assets are simultaneously determined by similar economic forces — correlation between them should not be accepted as evidence of a causal sequence. All variables have the expected sign and effect, except that female wage variables have a negligible coefficient. Children under 7 seem to decrease family savings, not by increasing expenditures — consumption is merely shifted, as from travel to housing — but by decreasing mothers' market work. (Supported by a grant from the Department of Health, Education, and Welfare.)

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