Wage Shocks and Consumption Variability in Mexico During the 1990s

33 Pages Posted: 21 Apr 2011

See all articles by Miguel Székely

Miguel Székely

Center for Education and Social Studies

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)

Date Written: May 2001

Abstract

This paper presents evidence on the relationship between economic shocks to relative male wages and changes in household consumption in Mexico during the 1990s, which is a period characterized by high volatility. In addition to performing this type of analysis for Mexico for the first time, the paper makes two main contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: non-durable goods, durable goods, education and health. Our results for non-durable goods consumption reject the hypothesis that Mexican households are able to insure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represent longer-run investment in human capital, which makes them more vulnerable in the future.

Suggested Citation

Székely, Miguel and Attanasio, Orazio, Wage Shocks and Consumption Variability in Mexico During the 1990s (May 2001). IDB Working Paper No. 378, Available at SSRN: https://ssrn.com/abstract=1817248 or http://dx.doi.org/10.2139/ssrn.1817248

Miguel Székely (Contact Author)

Center for Education and Social Studies ( email )

Mexico City
Mexico

Orazio Attanasio

University College London - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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