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Wage shocks and consumption variability in Mexico during the 1990s

  • Attanasio, Orazio P.
  • Szekely, Miguel

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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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 73 (2004)
Issue (Month): 1 (February)
Pages: 1-25

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Handle: RePEc:eee:deveco:v:73:y:2004:i:1:p:1-25
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  1. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," Research Department Publications 4235, Inter-American Development Bank, Research Department.
  2. Jappelli, Tullio & Pistaferri, Luigi, 2005. "Intertemporal choice and consumption mobility," CFS Working Paper Series 2005/28, Center for Financial Studies (CFS).
  3. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  4. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
  5. Rosenzweig, Mark R. & Wolpin, Kenneth I., 1989. "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India," Bulletins 7487, University of Minnesota, Economic Development Center.
  6. Orazio Attanasio & Gabriella Berloffa & Richard Blundell & Stephen Redding, 2002. "From wages to consumption inequality: tracking shocks," IFS Working Papers W02/20, Institute for Fiscal Studies.
  7. 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.
  8. repec:oup:restud:v:64:y:1997:i:3:p:311-35 is not listed on IDEAS
  9. Deaton, A. & Paxson, C., 1993. "Intertemporal Choice and Inequality," Papers 168, Princeton, Woodrow Wilson School - Development Studies.
  10. Browning, M. & Crossley, T., 1999. "Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell," ANU Working Papers in Economics and Econometrics 1999-376, Australian National University, College of Business and Economics, School of Economics.
  11. Orazio Attanasio & Steven J. Davis, 1994. "Relative Wage Movements and the Distribution of Consumption," NBER Working Papers 4771, National Bureau of Economic Research, Inc.
  12. repec:oup:qjecon:v:113:y:1998:i:2:p:603-640 is not listed on IDEAS
  13. 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.
  14. 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 4245, Inter-American Development Bank, Research Department.
  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 928-56, October.
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