Wage Risk and Government and Spousal Insurance

Mariacristina De Nardi, Giulio Fella and Gonzalo Paz-Pardo

No 28294, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The extent to which households can self-insure depends on family structure and wage risk. We calibrate a model of couples and singles’ savings and labor supply under two types of wage processes. The first wage process is the canonical—age independent, linear—one that is typically used to evaluate government insurance provision. The second wage process is a flexible one. We use our model to evaluate the optimal mix of the two most common types of means-tested benefits—in-work versus income floor. The canonical wage process underestimates wage persistence for women and thus implies that in-work benefits should account for most benefit income. In contrast, the richer wage process that matches the wage data well, implies that the income floor should be the main benefit source, similarly to the system in place in the UK. This stresses that allowing for rich wage dynamics is important to properly evaluate policy.

JEL-codes: D1 D12 D14 D15 H11 H2 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lma
Note: EFG LS PE
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Citations: View citations in EconPapers (3)

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Working Paper: Wage Risk and Government and Spousal Insurance (2020)
Working Paper: Wage Risk and Government and Spousal Insurance (2020)
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