IDEAS home Printed from https://ideas.repec.org/p/mrr/papers/wp143.html
   My bibliography  Save this paper

Home Production by Dual Earner Couples and Consumption During Retirement

Author

Listed:
  • 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.

Suggested Citation

  • Christopher House & John Laitner & Dmitriy Stolyarov, 2006. "Home Production by Dual Earner Couples and Consumption During Retirement," Working Papers wp143, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp143
    as

    Download full text from publisher

    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp143.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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 971-987, December.
    2. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-788, September.
    3. John Laitner & Dan Silverman, 2005. "Estimating Life-Cycle Parameters from Consumption Behavior at Retirement," NBER Working Papers 11163, National Bureau of Economic Research, Inc.
    4. 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 1166-1187, December.
    5. 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.
    6. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc.
    7. Joseph G. Altonji & Aloysius Siow, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 293-328.
    8. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    9. 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.
    10. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 179-193, June.
    11. 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, May.
    12. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc.
    13. 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.
    14. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-1286, September.
    15. 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.
    16. 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.
    17. 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 223-255, March-Apr.
    18. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-290, May.
    19. 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.
    20. 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.
    21. 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 503-545, July.
    22. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
    23. Michael D. Hurd & Susann Rohwedder, 2006. "Economic Well-Being at Older Ages: Income- and Consumption-Based Poverty Measures in the HRS," NBER Working Papers 12680, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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, May.
    2. Laitner, John & Silverman, Dan, 2012. "Consumption, retirement and social security: Evaluating the efficiency of reform that encourages longer careers," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 615-634.
    3. 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, May.
    4. Karen A. Kopecky, 2011. "The Trend In Retirement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 287-316, May.
    5. Erik Hurst, 2004. "Grasshoppers, Ants and Pre-Retirement Wealth: A Test of Permanent Income Consumers," Working Papers wp088, University of Michigan, Michigan Retirement Research Center.
    6. Urban J. Jermann & Marianne Baxter, 1999. "Household Production and the Excess Sensitivity of Consumption to Current Income," American Economic Review, American Economic Association, vol. 89(4), pages 902-920, September.
    7. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    8. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
    9. Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
    10. Bonsang, Eric & Klein, Tobias J., 2012. "Retirement and subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 311-329.
    11. Charlotte Ostergaard & Bent E. Serensen & Oved Yosha, 2002. "Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 634-645, June.
    12. Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-1137, December.
    13. Christopher House & John Laitner & Dmitriy Stolyarov, 2007. "This study seeks to quantify determinants, and costs, of the labor­force participation of married women. We use demographic and earnings data from the Health and Retirement Study. The earnings data co," Working Papers wp171, University of Michigan, Michigan Retirement Research Center.
    14. Garry F. Barrett & Matthew Brzozowski, 2010. "Involuntary Retirement and the Resolution of the Retirement-Consumption Puzzle: Evidence from Australia," Social and Economic Dimensions of an Aging Population Research Papers 275, McMaster University.
    15. 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.
    16. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 1035-1046, December.
    17. Li, Hongbin & Shi, Xinzheng & Wu, Binzhen, 2016. "The retirement consumption puzzle revisited: Evidence from the mandatory retirement policy in China," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 623-637.
    18. Hurd, Michael D. & Rohwedder, Susann, 2013. "Heterogeneity in spending change at retirement," The Journal of the Economics of Ageing, Elsevier, vol. 1, pages 60-71.
    19. Lührmann Melanie, 2010. "Consumer Expenditures and Home Production at Retirement – New Evidence from Germany," German Economic Review, De Gruyter, vol. 11(2), pages 225-245, May.
    20. Rogerson, Richard & Wallenius, Johanna, 2016. "Retirement, home production and labor supply elasticities," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 23-34.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp143. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MRRC Administrator (email available below). General contact details of provider: https://edirc.repec.org/data/isumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.