How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?

63 Pages Posted: 5 Apr 2018

See all articles by Dirk Krueger

Dirk Krueger

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Chunzan Wu

University of Pennsylvania

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of $29% and $16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner.

Keywords: Bewley Models, Consumption Insurance, Labor Supply

Suggested Citation

Krueger, Dirk and Wu, Chunzan, How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply? (March 2018). CEPR Discussion Paper No. DP12828, Available at SSRN: https://ssrn.com/abstract=3155164

Dirk Krueger (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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HOME PAGE: http://www.econ.upenn.edu/~dkrueger/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Chunzan Wu

University of Pennsylvania

Philadelphia, PA 19104
United States

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