Were Nineteenth-Century Industrial Workers Permanent Income Savers?
Theories of household saving posit that households add to or draw down wealth to equalize the discounted presented value of consumption over time. This paper examines the extent to which nineteenth-century urban American industrial workers used saving and dissaving to smooth consumption in response to unanticipated, plausibly exogenous, shocks to income. Information on the expected and unexpected number of days unemployed is used to construct estimates of transitory income. The data are then used to estimate the marginal propensity to save from transitory income, and the results are broadly consistent with Friedman’s (1957) permanent income hypothesis.
I thank Ray Cohn and Richard Sutch for comments, and Babur De Los Santos for advice on the econometrics. Veronica Aoki Santarosa, Denica Karadzhova, Dimitar Marmarov, and Justus Staisiunas for exceptional research assistance. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Howard Bodenhorn, 2019. "Were Nineteenth‐Century Industrial Workers Permanent Income Savers?," Southern Economic Journal, vol 85(4), pages 1286-1310. citation courtesy of