Inequality and the Lifecycle

Greg Kaplan

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: I structurally estimate an incomplete markets lifecycle model with endogenous labor supply, using data on the joint distribution of wages, hours and consumption. The model is successful at matching the evolution of both the first and second moments of the data over the lifecycle. The key challenge for the model is to generate declining inequality in annual hours worked over the first half of the working life, while respecting the constraints imposed by the data on consumption and wages. I argue that this is a robust feature of the data on lifecycle labor supply that is strongly at odds with the intra-temporal first order condition for labor supply. Allowing for a realistic degree of involuntary unemployment, coupled with preferences that feature nonseparability in the disutility of the extensive and intensive margins of hours worked, allows the model to overcome this challenge. The results imply that labor market frictions are important in jointly accounting for observed cross-sectional inequality in labor supply and consumption and may have quantitative relevance for analyses that exploit the intra-temporal first-order condition for labor.

Keywords: Structural Estimation; Inequality; Lifecycle; Labor Supply; Incomplete Markets; Consumption; Unemployment (search for similar items in EconPapers)
JEL-codes: D10 D31 E21 J22 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2011-05-28
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Journal Article: Inequality and the life cycle (2012)
Working Paper: Inequality and the Lifecycle (2010)
Working Paper: Inequality and the Lifecycle (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:11-014

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