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

Dirk Krueger () and Chunzan Wu

No 12828, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Bewley Models; Consumption Insurance; Labor Supply (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dem, nep-dge and nep-ias
Date: 2018-03
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