NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?

Chunzan Wu, Dirk Krueger

NBER Working Paper No. 24472
Issued in March 2018
NBER Program(s):Economic Fluctuations and Growth, Labor Studies

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.

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Document Object Identifier (DOI): 10.3386/w24472

 
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