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Home Production by Dual Earner Couples and Consumption During Retirement

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  • Christopher House

    (University of Michigan)

  • John Laitner

    (University of Michigan)

  • Dmitriy Stolyarov

    (University of Michigan)

Abstract

To study the role of home production in life-cycle behavior, this paper creates a theoretical model in which both spouses in a couple allocate their time between market and home work. It then derives a pair of regression equations for estimating the parameters of the model, and it carries out the estimation using panel data on household net worth and lifetime earnings from the Health and Retirement Study and pseudo-panel data on household consumption expenditures from the Consumer Expenditure Survey. We estimate that the value of forgone home production is roughly 10-15 cents for every dollar that a married man earns, but 30-35 cents per dollar of married women’s market earnings. Our findings imply male labor supply elasticities that are very near zero and female elasticities in the range of 0.50. Our model predicts a substantial decline in measured consumption expenditure at a household’s retirement, and it shows that Euler-equation models of consumption behavior should include terms reflecting home production.

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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp143.

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Length: 30 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:mrr:papers:wp143

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  1. repec:att:wimass:9303 is not listed on IDEAS
  2. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  3. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," Working Papers 03-12, RAND Corporation Publications Department.
  4. John Laitner & Dan Silverman, 2005. "Estimating Life-Cycle Parameters from Consumption Behavior at Retirement," NBER Working Papers 11163, National Bureau of Economic Research, Inc.
  5. Shapiro, Matthew D., 1984. "The permanent income hypothesis and the real interest rate : Some evidence from panel data," Economics Letters, Elsevier, vol. 14(1), pages 93-100.
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  8. Gustman, Alan L & Steinmeier, Thomas L, 2000. "Retirement in Dual-Career Families: A Structural Model," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 503-45, July.
  9. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  10. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-88, September.
  11. Altonji, Joseph G & Siow, Aloysius, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 293-328, May.
  12. Ellen McGrattan & Richard Rogerson & Randall Wright, 1995. "An equilibrium model of the business cycle with household production and fiscal policy," Staff Report 191, Federal Reserve Bank of Minneapolis.
  13. John Laitner & Daniel Silverman, 2006. "Consumption, Retirement, and Social Security: Evaluating the Efficiency of Reform with a Life-Cycle Model," Working Papers wp142, University of Michigan, Michigan Retirement Research Center.
  14. Michael Hurd & Susann Rohwedder, 2006. "Consumption and Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS," Working Papers wp110, University of Michigan, Michigan Retirement Research Center.
  15. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
  16. Shea, John, 1994. "Should we test the life cycle--permanent income hypothesis with food consumption data?," Economics Letters, Elsevier, vol. 45(1), pages 63-68, May.
  17. Attanasio, Orazio P., 1999. "Consumption," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 11, pages 741-812 Elsevier.
  18. Michael Hurd & Susann Rohwedder, 2006. "Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS," Working Papers 410, RAND Corporation Publications Department.
  19. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  20. Christopher House & John Laitner & Dmitriy Stolyarov, 2008. "Valuing Lost Home Production Of Dual Earner Couples," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 701-736, 05.
  21. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  22. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
  23. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
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