Labour Supply and Consumption Smoothing when Income Shocks are Non - Insurable

This paper addresses the question, whether and how employees use second job holdings to smooth out consumption shortfalls from non-anticipated wage shocks in their main employment. The analysis is based on the panel estimation of a dual job labour supply model a unique nationally representative data sets from Ukraine which contains detailed information on wage non-payment. The analysis accounts for workers’ unobserved heterogeneity as well as for measurement error in the wage shock information. The estimated labour supply responses confirm that second job holdings are used as self-help devices against wage shocks and follow the lifecycle of wage arrears. Consumption shortfalls can be successfully smoothed out by households that engage in second jobs. Neither do I find anticipatory ex-ante coping behaviour with wage shocks nor can any of the presented alternative hypotheses explain the observed labour supply pattern.