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Title:Consumption inequality and family labor supply PDF Logo
Authors:Blundell, Richard
Pistaferri, Luigi
Saporta-Eksten, Itay
Issue Date:2012
Series/Report no.:Discussion Paper Series, Forschungsinstitut zur Zukunft der Arbeit 6900
Abstract:In this paper we examine the link between wage inequality and consumption inequality using a life cycle model that incorporates household consumption and family labor supply decisions. We derive analytical expressions based on approximations for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, non-separability and asset accumulation decisions. We show how the model can be estimated and identified using panel data for hours, earnings, assets and consumption. We focus on the importance of family labour supply as an insurance mechanism to wage shocks and find strong evidence of smoothing of male's and female's permanent shocks to wages. Once family labor supply, assets and taxes are properly accounted for, there is little evidence of additional insurance.
Subjects:consumption
labor supply
earnings
inequality
JEL:J22
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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