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How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?

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  • Chunzan Wu
  • Dirk Krueger

Abstract

We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of 29% and 16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner.

Suggested Citation

  • Chunzan Wu & Dirk Krueger, 2018. "How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?," NBER Working Papers 24472, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24472
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    Cited by:

    1. Fernández-Blanco, Javier, 2022. "Unemployment risks and intra-household insurance," Journal of Economic Theory, Elsevier, vol. 203(C).
    2. Daminato, Claudio & Pistaferri, Luigi, 2020. "Family labor supply and asset returns," European Economic Review, Elsevier, vol. 124(C).
    3. Claudio Campanale, 2020. "Consumption insurance and education: A puzzle?," Working papers 069, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    4. Fabio Blasutto, 2020. "Cohabitation vs Marriage: Mating Strategies by Education in the USA," LIDAM Discussion Papers IRES 2020023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Kohei Kubota, 2021. "Partial insurance in Japan," The Japanese Economic Review, Springer, vol. 72(2), pages 299-328, April.
    6. Campanale, Claudio & Sartarelli, Marcello, 2024. "Life-cycle wealth accumulation and consumption insurance," Journal of Macroeconomics, Elsevier, vol. 79(C).
    7. Seth Pruitt & Nicholas Turner, 2018. "The Nature of Household Labor Income Risk," Finance and Economics Discussion Series 2018-034, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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