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Dean Karlan, Yale University and NBER;
Margaret McConnell, Harvard School of Public Health;
Sendhil Mullainathan, Harvard University and NBER; and
Jonathan Zinman, Dartmouth College
Getting to the Top of Mind: How Reminders Increase Saving
Karlan and his co-authors develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but that they fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with those from models of present-bias. The model here also generates the unique predictions that reminders may increase saving, and that reminders will be more effective when they increase the salience of a specific expenditure. The authors find support for these predictions in three field experiments that randomly assign reminders to new savings account holders.
Mark Aguiar and Mark Bils, University of Rochester and NBER
Has Consumption Inequality Mirrored Income Inequality?
Aguiar and Bils revisit the extent to which the increase in income inequality over the last 30 years has been mirrored by consumption inequality. They do this by constructing two alternative measures of consumption expenditure using data from the Consumer Expenditure Survey (CE). First they use reports of active savings and aftertax income to construct the measure of consumption implied by the budget constraint. They find that the consumption inequality implied by savings behavior closely tracks income inequality between 1980 and 2007. Second, they use a demand system to correct for systematic measurement error in the CE's expenditure data. Specifically, they consider trends in the relative expenditure of high-income and low-income households for different goods with different income elasticities. Their estimation exploits the difference in the growth rate of luxury consumption inequality versus necessity consumption inequality. This "double-differencing," which they implement in a a regression framework, corrects for mismeasurement that can systematically vary over time by good and income group. This second exercise also indicates that consumption inequality has closely tracked income inequality over the period 1980-2007. Both of these measures show a significantly greater increase in consumption inequality than what is obtained from the CE's total household expenditure data directly.
Thomas Crossley, Cambridge University;
Kevin Milligan, University of British Columbia and NBER
Micro and Macro Based Saving Rates What Explains the Diffe
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John Sabelhaus, University of Maryland,
The Great Moderation in Micro Labor Earnings
Sabelhaus and Song note that between 1980 and the early 1990s the variability of growth rates of labor earnings across the prime-age working population fell significantly. This decline and timing are consistent with other macro and micro observations about growth variability that are collectively referred to as the "Great Moderation." The variability of earnings growth is negatively correlated with age at any point in time, and the U.S. working age population got older during this period because the Baby Boom was aging. However, the decrease in variability was roughly uniform across all age groups, so population aging is not the source of the overall decline. The variance of log changes also declined at multi-year frequencies in such a way as to suggest that both permanent and transitory components of earnings shocks became more moderate. A simple identification strategy for separating age and cohort effects shows a very intuitive pattern of permanent and transitory shocks over the life cycle, and confirms that a shift over time in the stochastic process occurred even after controlling for age effects.
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