Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

Uncertainty, Redistribution, and the Labor Market

November 2012
Casey Mulligan

Uncertainty and its composition can affect the demand for social insurance, and thereby the labor market. This paper shows that small to medium-sized increases in uncertainty or risk aversion are enough to recommend an expansion of the safety net that would be broadly similar to the actual safety net expansions, which significantly depressed the labor market. Labor market effects of uncertainty through investment and insurance channels are also examined with employer and employee labor wedges.