Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154089
Authors: 
Blundell, Richard
Pistaferri, Luigi
Saporta-Eksten, Itay
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1656
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 labour 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 labour supply, assets and taxes are properly accounted for there is little evidence of additional insurance.
Subjects: 
Consumption
earnings
Inequality
labor supply
JEL: 
D11
D12
D31
D91
Document Type: 
Working Paper

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