Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications Consumption inequality and family labor supply

Consumption inequality and family labor supply

Richard Blundell, Luigi Pistaferri and Itay Saporta-Eksten
Journal article | American Economic Review

We examine the link between wage and consumption inequality using a life-cycle model incorporating consumption and family labor supply decisions. We derive analytical expressions for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, nonseparability, progressive taxation, and asset accumulation. The model is estimated using panel data for hours, earnings, assets, and consumption. We focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks. Once family labor supply, assets, and taxes are properly accounted for there is little evidence of additional insurance. 

Find the working paper here.

Figure. After-tax Marshallian elasticities

Figure. After-tax Marshallian elasticities