How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?

Chunzan Wu and Dirk Krueger
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Chunzan Wu: University of Miami

No 493, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: 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.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-ias
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Related works:
Working Paper: How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply? (2018)
Working Paper: How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply? (2018)
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