TY  - JOUR
AU  - Meghir,Costas
AU  - Pistaferri,Luigi
TI  - Earnings, Consumption and Lifecycle Choices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15914
PY  - 2010
Y2  - April 2010
UR  - http://www.nber.org/papers/w15914
L1  - http://www.nber.org/papers/w15914.pdf
N1  - Author contact info:
Costas Meghir
Department of Economics
Yale University
37 Hillhouse Avenue
New Haven, CT 06511
Tel: 203/432-3558
E-Mail: c.meghir@yale.edu

Luigi Pistaferri
Department of Economics
579 Serra Mall
Stanford University
Stanford, CA 94305-6072
Tel: 650/724-4904
Fax: 650/725-5702
E-Mail: pista@stanford.edu
AB  - We discuss recent developments in the literature that studies how the dynamics of earnings and wages affect consumption choices over the life cycle. We start by analyzing the theoretical impact of income changes on consumption - highlighting the role of persistence, information, size and insurability of changes in economic resources. We next examine the empirical contributions, distinguishing between papers that use only income data and those that use both income and consumption data. The latter do this for two purposes. First, one can make explicit assumptions about the structure of credit and insurance markets and identify the income process or the information set of the individuals. Second, one can assume that the income process or the amount of information that consumers have are known and tests the implications of the theory. In general there is an identification issue that is only recently being addressed, with better data or better "experiments". We conclude with a discussion of the literature that endogenize people's earnings and therefore change the nature of risk faced by households.
ER  -