Discussion paper

DP12828 How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?

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.

£6.00
Citation

Krueger, D and C Wu (2018), ‘DP12828 How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?‘, CEPR Discussion Paper No. 12828. CEPR Press, Paris & London. https://cepr.org/publications/dp12828