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Consumption inequality and family labor supply

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  • Blundell, Richard
  • Pistaferri, Luigi
  • Saporta-Eksten, Itay

Abstract

In this paper we examine the link between wage inequality and consumption inequality using a life cycle model that incorporates household consumption and family labour supply decisions. We derive analytical expressions based on approximations for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, non-separability and asset accumulation decisions. We show how the model can be estimated and identified using panel data for hours, earnings, assets and consumption. We focus on the importance of family labour supply as an insurance mechanism to wage shocks and find strong evidence of smoothing of male’s and female’s permanent shocks to wages. Once family labour supply, assets and taxes are properly accounted for there is little evidence of additional insurance. JEL Classification: D11, D12, D31, D91

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Paper provided by European Central Bank in its series Working Paper Series with number 1656.

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Date of creation: Mar 2014
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Handle: RePEc:ecb:ecbwps:20141656

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Keywords: consumption; earnings; inequality; labor supply;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Consumption Inequality and Family Labor Supply
    by maximorossi in NEP-LTV blog on 2012-10-21 20:23:54
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Cited by:
  1. Blundell, Richard & Graber, Michael & Mogstad, Magne, 2014. "Labor Income Dynamics and the Insurance from Taxes, Transfers, and the Family," IZA Discussion Papers 7916, Institute for the Study of Labor (IZA).
  2. Martha Starr, 2014. "Gender, added-worker effects, and the 2007–2009 recession: Looking within the household," Review of Economics of the Household, Springer, vol. 12(2), pages 209-235, June.
  3. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2013. "Childcare Subsidies and Household Labor Supply," Working Papers 738, Barcelona Graduate School of Economics.
  4. Vasilev, Aleksandar, 2013. "On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework," SIRE Discussion Papers 2013-84, Scottish Institute for Research in Economics (SIRE).
  5. Felix Reichling & Charles Whalen, 2012. "Review of Estimates of the Frisch Elasticity of Labor Supply: Working Paper 2012-13," Working Papers 43676, Congressional Budget Office.
  6. Paul Bingley & Lorenzo Cappellari, 2013. "Correlation of Brothers Earnings and Intergenerational Transmission," DISCE - Working Papers del Dipartimento di Economia e Finanza def6, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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