DP12828 How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?
|Author(s):||Dirk Krueger, Chunzan Wu|
|Publication Date:||March 2018|
|Keyword(s):||Bewley Models, Consumption Insurance, Labor Supply|
|Programme Areas:||Labour Economics, Public Economics, Monetary Economics and Fluctuations, Macroeconomics and Growth|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=12828|
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.