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 and asset accumulation decisions. We show how the model can be estimated and identified using panel data for hours, earnings, assets and consumption. We focus on the importance of family labour 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 and taxes are properly accounted for there is little evidence of additional insurance.
Authors
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Stanford University
Itay Saporta-Eksten
Working Paper details
- Publisher
- European Central Bank
Suggested citation
R, Blundell and L, Pistaferri and I, Saporta-Eksten. (2014). Consumption inequality and family labor supply. London: European Central Bank. Available at: https://ifs.org.uk/publications/consumption-inequality-and-family-labor-supply (accessed: 26 April 2024).
Related documents
More from IFS
Understand this issue
If you can’t see it, you can’t be it: role models influence female junior doctors’ choice of medical specialty
24 April 2024
Sure Start achieved its aims, then we threw it away
15 April 2024
A mess has been made of Child Benefit, and the clear-up operation may not be easy
29 March 2024
Policy analysis
What you need to know about the new childcare entitlements
28 March 2024
The short- and medium-term impacts of Sure Start on educational outcomes
9 April 2024
Sure Start greatly improved disadvantaged children’s GCSE results
9 April 2024
Academic research
Imagine your life at 25: Gender conformity and later-life outcomes
24 April 2024
A senior doctor like me: Gender match and occupational choice
24 April 2024
Parental beliefs, perceived health risks, and time investment in children
15 April 2024