The Effect of Job Insecurity on Labour Supply

Abstract

The aim of this paper is to analyse the effect of job insecurity on labour supply. We propose a discrete choice model of labour supply, in which the choice alternatives are characterised by bundles of income, hours of work and job insecurity. The results show that job insecurity has a negative and significant effect on individuals’ utility. Moreover, once job insecurity is included in the discrete choice alternatives, the predictive power of the model improves significantly. Labour supply elasticities are significantly higher than those obtained with a traditional model and increase with the level of job insecurity. Finally, a decrease of job insecurity at work has a positive and significant effect on participation. Policies aimed at improving working conditions could, in this sense, be useful to create incentives in labour market.