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Wage Shocks and Consumption Variability in Mexico during the 1990s

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  • Miguel Székely
  • Orazio P. Attanasio

Abstract

This paper presents evidence on the relationship between economic shocks to relative male wages and changes in household consumption in Mexico during the 1990s, which is a period characterized by high volatility. In addition to performing this type of analysis for Mexico for the first time, the paper makes two main contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: non-durable goods, durable goods, education and health. Our results for non-durable goods consumption reject the hypothesis that Mexican households are able to insure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represent longer-run investment in human capital, which makes them more vulnerable in the future.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4265.

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Date of creation: May 2001
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Handle: RePEc:idb:wpaper:4265

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  1. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," IDB Publications 6476, Inter-American Development Bank.
  2. Browning, M. & Crossley, T., 1999. "Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell," Papers, Australian National University - Department of Economics 376, Australian National University - Department of Economics.
  3. Tullio Jappelli & Luigi Pistaferri, 2004. "Intertemporal choice and consumption mobility," 2004 Meeting Papers 195, Society for Economic Dynamics.
  4. Eduardo Fernández-Arias & Ricardo Hausmann, 2000. "The Redesign of the International Financial Architecture from a Latin American Perspective: Who Pays the Bill?," Research Department Publications, Inter-American Development Bank, Research Department 4245, Inter-American Development Bank, Research Department.
  5. Orazio P. Attanasio & Tullio Jappelli, 2001. "Intertemporal Choice And The Cross-Sectional Variance Of Marginal Utility," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 13-27, February.
  6. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(6), pages 1227-62, December.
  7. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February.
  8. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 957-76, October.
  9. Orazio Attanasio & Gabriella Berloffa & Richard Blundell & Stephen Redding, 2002. "From wages to consumption inequality: tracking shocks," IFS Working Papers, Institute for Fiscal Studies W02/20, Institute for Fiscal Studies.
  10. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers, Institute for Fiscal Studies W97/15, Institute for Fiscal Studies.
  11. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, Econometric Society, vol. 62(3), pages 539-91, May.
  12. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(3), pages 437-67, June.
  13. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 223-44, April.
  14. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 928-56, October.
  15. repec:fth:inadeb:429 is not listed on IDEAS
  16. Jacoby, Hanan G & Skoufias, Emmanuel, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(3), pages 311-35, July.
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Cited by:
  1. TAMURA Sakuya & SAWADA Yasuyuki, 2009. "Consumption Insurance against Unforeseen Epidemics:The Case of Avian Influenza in Vietnam," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 09023, Research Institute of Economy, Trade and Industry (RIETI).
  2. Skoufias, Emmanual & Parker, Susan W., 2002. "Labor market shocks and their impacts on work and schooling," FCND discussion papers, International Food Policy Research Institute (IFPRI) 129, International Food Policy Research Institute (IFPRI).
  3. Kazianga, Harounan & Udry, Christopher, 2006. "Consumption smoothing? Livestock, insurance and drought in rural Burkina Faso," Journal of Development Economics, Elsevier, vol. 79(2), pages 413-446, April.

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