Consumption Inequality and Family Labor Supply
Luigi Pistaferri (Stanford University)
Monday, 3/9/2015. ARCHIVED EVENT
Location: 6050 ISR Thompson St
In this paper we examine the link between wage inequality and consumption inequality using a life cycle model that incorporates household consumption and family labor supply decisions. We derive analytical expressions based on approximations for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, non-separability, progressive taxation and government transfers, and asset accumulation decisions. We show how the model can be identified and estimated using panel data for hours, earnings, assets and consumption. We focus on the importance of family labor supply as an insurance mechanism to wage shocks and find strong evidence of smoothing of male's and female's permanent shocks to wages. Once family labor supply, assets, taxes and transfers are properly accounted for there is little evidence of additional insurance.
Luigi Pistaferri is a Professor of Economics at Stanford University and a research fellow of NBER, CEPR, and SIEPR. His papers are on the intersection between labor economics and macroeconomics. Pistaferri holds a PhD in Economics from University College, London and is one of the co-editors of the American Economic Review. He joined Stanford University in 1999 after finishing his PhD and has been a member of the faculty ever since, with the exception of one year sabbatical spent at EIEF in Rome.