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

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  • Krueger, Dirk
  • Wu, Chunzan

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

  • Krueger, Dirk & Wu, Chunzan, 2018. "How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?," CEPR Discussion Papers 12828, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12828
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    References listed on IDEAS

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    1. Rupert, Peter & Zanella, Giulio, 2015. "Revisiting wage, earnings, and hours profiles," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 114-130.
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    4. Raül Santaeulàlia-Llopis & Yu Zheng, 2018. "The Price of Growth: Consumption Insurance in China 1989–2009," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(4), pages 1-35, October.
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    Cited by:

    1. Claudio Campanale & Marcello Sartarelli, 2018. "“Life-cycle Wealth Accumulation and Consumption Insurance"," CeRP Working Papers 186, Center for Research on Pensions and Welfare Policies, Turin (Italy).

    More about this item

    Keywords

    Bewley Models; Consumption Insurance; Labor Supply;

    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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