montreal - Consumption and Labor Supply with Partial...

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Consumption and Labor Supply with Partial Insurance Jonathan Heathcote (Georgetown University) Kjetil Storesletten (University of Oslo) Gianluca Violante (New York University) University of Montreal, March 17, 2006
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Introduction What are the facts about inequality over the life-cycle and through time? What sort of theory do we need to account for these facts? We develop a version of the life-cycle model with labor supply in which the mapping between structural parameters and moments is transparent - all expressions in closed-form We learn what model ingredients are key to explaining certain facts Useful guide for quantitative work with heterogeneous agents and incom- plete risk-sharing 1
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Outline 1. Facts 2. Model 3. Identification 4. Estimation results 5. Sensitivity 2
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Macro Facts Joint evolution of within-cohort dispersion in wages, hours and consump- tion contains valuable information about risk and insurance when orga- nized within the life-cycle model of consumption and labor supply I Storesletten, Telmer and Yaron (2004) Changes in cross-sectional dispersion over time contain valuable infor- mation about the nature of changes in the nature of risk over time I Blundell and Preston (1998), Krueger and Perri (2004) Our approach: both sets of facts are important, one would like to simultaneously account for both within life-cycle framework 3
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Data Wages, hours and earnings from PSID, 1967-1996 Wage computed as annual earnings divided by annual hours Observations dropped if wage less than half minimum wage or if earnings top coded Consumption from Consumer Expenditure Survey, 1980-1996 Household-level data from Krueger and Perri (2004) Focus on measure that excludes services from durables Sample Selection Age range 25-54 Annual hours 520, 5096 Same sample selection criteria applied to PSID and CEX data 4
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30 35 40 45 50 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 Variance of Wages by Age Age Data 30 35 40 45 50 0.3 0.32 0.34 0.36 0.38 0.4 Variance of Earnings by Age Age Data 30 35 40 45 50 0.075 0.08 0.085 0.09 0.095 Variance of Hours by Age Age Data 30 35 40 45 50 -0.018 -0.016 -0.014 -0.012 -0.01 -0.008 Covariance btw Wages and Hours by Age Age Data
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30 35 40 45 50 0.16 0.18 0.2 0.22 Variance of Consumption by Age Age Data 30 35 40 45 50 0.05 0.1 0.15 Covariance btw Consumption and Wages by Age Age Data 30 35 40 45 50 0.018 0.02 0.022 0.024 Covariance btw Consumption and Hours by Age Age Data
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1970 1975 1980 1985 1990 1995 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 Variance of Wages by Year Year Data 1970 1975 1980 1985 1990 1995 0.25 0.3 0.35 0.4 0.45 Variance of Earnings by Year Year Data 1970 1975 1980 1985 1990 1995 0.08 0.085 0.09 0.095 0.1 0.105 0.11 Variance of Hours by Year Year Data 1970 1975 1980 1985 1990 1995 -0.03 -0.025 -0.02 -0.015 -0.01 -0.005 0 Covariance btw Hours and Wages by Year Year Data
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1980 1982 1984 1986 1988 1990 1992 1994 1996 0.15 0.16 0.17 0.18 0.19 0.2 Variance of Consumption by Year
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This note was uploaded on 11/10/2011 for the course ECON 601 at Cornell University (Engineering School).

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montreal - Consumption and Labor Supply with Partial...

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