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Wage shocks and consumption variability in Mexico during the 1990s

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  • Attanasio, Orazio P.
  • Szekely, Miguel

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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Suggested Citation

  • Attanasio, Orazio P. & Szekely, Miguel, 2004. "Wage shocks and consumption variability in Mexico during the 1990s," Journal of Development Economics, Elsevier, vol. 73(1), pages 1-25, February.
  • Handle: RePEc:eee:deveco:v:73:y:2004:i:1:p:1-25
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    References listed on IDEAS

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    1. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
    2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    3. 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, vol. 101(2), pages 223-244, April.
    4. 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.
    5. Tullio Jappelli & Luigi Pistaferri, 2006. "Intertemporal Choice and Consumption Mobility," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 75-115, March.
    6. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-467, June.
    7. Hanan G. Jacoby & Emmanuel Skoufias, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 311-335.
    8. 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.
    9. Martin Browning & Thomas Crossley, "undated". "Shocks, stocks and socks: consumption smoothing and the replacement of durables during an unemployment spell," Canadian International Labour Network Working Papers 27, McMaster University.
    10. repec:idb:wpaper:429 is not listed on IDEAS
    11. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," IDB Publications (Working Papers) 1332, Inter-American Development Bank.
    12. Morley, Samuel A., 2000. "La distribución de ingreso en América Latina y el Caribe," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1657 edited by Cepal, December.
    13. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 603-640.
    14. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    15. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    16. Orazio Attanasio & Berloffa, Berloffa & Richard Blundell & Stephen Redding, 2002. "From wages to consumption inequality: tracking shocks," IFS Working Papers W02/20, Institute for Fiscal Studies.
    17. Eduardo Fernández-Arias & Ricardo Hausmann, 2000. "The Redesign of the International Financial Architecture from a Latin American Perspective: Who Pays the Bill?," IDB Publications (Working Papers) 1340, Inter-American Development Bank.
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    Cited by:

    1. Murard, Elie, 2016. "Consumption and Leisure: The Welfare Impact of Migration on Family Left Behind," IZA Discussion Papers 10305, Institute for the Study of Labor (IZA).
    2. Jaime Lara, 2016. "Remittances as an Insurance Mechanism in the Labor Market," Journal of Labor Research, Springer, vol. 37(3), pages 368-387, September.
    3. Skoufias, Emmanual & Parker, Susan W., 2002. "Labor market shocks and their impacts on work and schooling," FCND discussion papers 129, International Food Policy Research Institute (IFPRI).
    4. repec:eee:ecmode:v:64:y:2017:i:c:p:141-152 is not listed on IDEAS
    5. TAMURA Sakuya & SAWADA Yasuyuki, 2009. "Consumption Insurance against Unforeseen Epidemics:The Case of Avian Influenza in Vietnam," Discussion papers 09023, Research Institute of Economy, Trade and Industry (RIETI).
    6. Sung Jin Kang & Yasuyuki Sawada, 2008. "Credit Crunch And Household Welfare, The Case Of The Korean Financial Crisis," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 438-458.
    7. Chiara Binelli, 2008. "Returns to Education and Increasing Wage Inequality in Latin America," Working Paper series 30_08, Rimini Centre for Economic Analysis.
    8. 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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