1. Consumption Inequality across Heterogeneous Families (2017) - Submitted
This paper studies the transmission of wage shocks into consumption across families that exhibit unobserved preference heterogeneity. Heterogeneity and preferences over consumption and family labor supply are nonparametric. I show that any moment of the joint distribution of policy-relevant wage elasticities of consumption and labor supply is identified separately from the distributions of incomes and outcomes. I decompose consumption inequality into components pertaining to wage inequality, preference heterogeneity and heterogeneity in wealth, and I show that preference heterogeneity always increases consumption inequality. To illustrate these points empirically, I fit second and third moments of consumption, earnings and wages in the PSID. I find that: (i) the distributions of permanent and transitory wage shocks exhibit strong negative skewness; (ii) there is substantial heterogeneity in consumption elasticities but not in elasticities of labor supply; (iii) consumption is on average fully insured against transitory shocks but tracks permanent shocks much more closely than previously found; moreover, there is substantial heterogeneity in the response of consumption to such shocks involving both the magnitude and the sign of the response; (iv) preference heterogeneity accounts for up to 58% of consumption inequality in the US since 1999. Seen together, these results suggest that preference heterogeneity has substantial implications for consumption inequality and partial insurance.
This paper examines changes in married people's allocation of time since 1980, a period in which female labor supply increased substantially, men's share of household work rose, and the gender wage gap narrowed down. I develop a life-cycle collective household model for market and non-market work, consumption and asset accumulation, which also features lack of commitment to lifetime marriage. Wages in the model shift intra-family bargaining power and induce bargaining effects on outcomes in addition to standard income and substitution effects. I estimate gender-specific preferences and how intra-family bargaining power changes with a narrowing gender gap using data from the PSID. The results suggest that a narrowing gender gap improved women's bargaining power in the family resulting in a shift of household work to their husbands. It also contributed to the increase in female labor market partici-pation. If the gender gap is counterfactually eliminated, the proportion of women in full-time work rises throughout the lifecycle to match approximately that of men. The increase comes from women who cut down household chores and enter the labor market when they previously did not participate.
This paper studies how individual and total consumption in the family respond to idiosyncratic wage changes using a collective life-cycle model for a family of two decision-making spouses. The model incorporates endogenous family labor supply, public and private consumption, asset accumulation, correlated wage shocks, and general nonseparable, spouse-specific preferences. Wages enter the household budget constraint, but also the spouses' intra-family bargaining powers implying lack of spousal commitment to future allocations. I derive analytical expressions for the dynamics of earnings and consumption; I show how those can be used to identify the household structure (spouse-specific preferences, allocation of consumption between spouses, a rich set of bargaining effects) with panel data on hours, earnings, assets, and household-level consumption only. The identifying assumption is that spouses have the same preferences with their single counterparts. Preliminary evidence from the PSID suggests strong labor and consumption response to wage shocks and that hours and consumption are substitute goods at the intensive margin of labor supply. Wages have an economically significant effect on intra-family bargaining power, but not statistically so.
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