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Wage Risk and Government and Spousal Insurance

Author

Listed:
  • Mariacristina De Nardi
  • Giulio Fella
  • Gonzalo Paz-Pardo

Abstract

The extent to which households can self-insure depends on family structure and wage risk. We calibrate a model of couples and singles’ savings and labor supply under two types of wage processes. The first wage process is the canonical—age independent, linear—one that is typically used to evaluate government insurance provision. The second wage process is a flexible one. We use our model to evaluate the optimal mix of the two most common types of means-tested benefits—in-work versus income floor. The canonical wage process underestimates wage persistence for women and thus implies that in-work benefits should account for most benefit income. In contrast, the richer wage process that matches the wage data well, implies that the income floor should be the main benefit source, similarly to the system in place in the UK. This stresses that allowing for rich wage dynamics is important to properly evaluate policy.

Suggested Citation

  • Mariacristina De Nardi & Giulio Fella & Gonzalo Paz-Pardo, 2020. "Wage Risk and Government and Spousal Insurance," NBER Working Papers 28294, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28294
    Note: EFG LS PE
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    Cited by:

    1. Darapheak Tin & Chung Tran, 2023. "Lifecycle Earnings Risk and Insurance: New Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 99(325), pages 141-174, June.
    2. Ana Sofia Pessoa, 2021. "Earnings Dynamics in Germany," CESifo Working Paper Series 9117, CESifo.
    3. Ma, Liang & He, Qiqi & Gan, Qixu, 2025. "Impact of short-term labor contracts on financial health: Evidence from migrant worker households in China," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 448-463.
    4. Jeremy Greenwood & Nezih Guner & Ricardo Marto, 2021. "The Great Transition: Kuznets Facts for Family-Economists," Economie d'Avant Garde Research Reports 33, Economie d'Avant Garde.
    5. Guvenen, Fatih & Ozkan, Serdar & Madera, Rocio, 2024. "Consumption dynamics and welfare under non-Gaussian earnings risk," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).
    6. Sagiri Kitao & Dinamo Mikoshiba, 2022. "Why Women Work the Way They Do in Japan: Roles of Fiscal Policies," CAMA Working Papers 2022-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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