Consumption Smoothing Among Working-Class American Families Before Social Insurance

John James, Michael Palumbo and M. Thomas

Working Papers from Houston - Department of Economics

Abstract: This paper examines whether the saving decisions among a large, unique sample of working-class American families around the turn of the twentieth century are consistent with consumption smoothing tendencies in the spirit of the permanent income hypothesis. We develop an econometric model to decompose each family's reported income realization into an expected and an unexpected components, then we estimate marginal propensities to save for each income component. The estimated regression coefficients are remarkably similar to point estimates available from other recent research based on quite different contemporary household data. Marginal propensities to save out of unexpected income shocks are large relative to propensities based on expected income movements, though the former lie much below one and the latter much above zero. Thus, while these data readily reject strict parameterizations of the permanent income hypothesis, we nonetheless conclude that families's saving decisions look quite "modern."

Keywords: UNEMPLOYMENT; INCOME; SAVINGS (search for similar items in EconPapers)
JEL-codes: D91 N31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 1998
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Consumption smoothing among working-class American families before social insurance (2007)
Working Paper: Consumption smoothing among working-class American families before social insurance (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:housto:98-05

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