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Relative Wage Movements and the Distribution of Consumption


Orazio Attanasio


University College London - Department of Economics; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Steven J. Davis


University of Chicago; National Bureau of Economic Research (NBER)


JOURNAL OF POLITICAL ECONOMY, Vol. 104, No. 6, December 1996

Abstract:     
We analyze how relative wage movements among birth cohorts and education groups affected the distribution of household consumption and economic welfare. Our empirical work draws on the best available cross-sectional data sets to construct synthetic panel data on U.S. consumption, labor supply and wages during the 1980s. We find that low-frequency movements in the cohort-education structure of pretax hourly wages among men drove large changes in the distribution of household consumption. The results constitute a spectacular failure of between-group consumption insurance, a failure not explained by existing theories of informationally constrained optimal consumption behavior. A welfare analysis indicates that the cost of between-group consumption variability is larger than the cost of aggregate consumption variability by two orders of magnitude.

JEL Classification: E21

Accepted Paper Series


Not Available For Download

Date posted: November 4, 1996  

Suggested Citation

Attanasio, Orazio and Davis, Steven J., Relative Wage Movements and the Distribution of Consumption. JOURNAL OF POLITICAL ECONOMY, Vol. 104, No. 6, December 1996. Available at SSRN: http://ssrn.com/abstract=3458

Contact Information

Orazio Attanasio
University College London - Department of Economics ( email )
Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5880 (Phone)
+44 20 7916 2775 (Fax)
Institute for Fiscal Studies (IFS)
7 Ridgmount Street
London, WC1E 7AE
United Kingdom
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Steven J. Davis (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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