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Essays on household consumption and labor supply

University of British Columbia

This dissertation studies how households adjust their consumption and labor supply in response to idiosyncratic shocks. In the first chapter, I propose an empirical strategy for measuring consumption allocations within households over time. The strategy consists of imputing gender-specific consumption data from a cross-sectional dataset to a panel. I apply it on two publicly available datasets in the US: the Consumer Expenditure Survey and the Panel Study of Income Dynamics. The generated panel allows researchers to investigate questions such as how the sharing rule shifts in response to various shocks. The second chapter studies how households insure themselves against idiosyncratic wage shocks and how this insurance interacts with intra-household bargaining. I set up an intertemporal household model and examine two channels of insurance, self-insurance and family labor supply adjustment. I consider two alternative specifications of this model: a unitary version in which I restrict sharing rules to be fixed within households, and a non-unitary one in which I allow sharing rules to change. I estimate the model using a panel that has information on consumption allocations within households. I find that intra-household allocations respond strongly to fluctuations in individual wages. Removing the restriction of fixed sharing rules does not reduce the extent of consumption smoothing within a household, but it significantly changes the relative importance of different channels. In particular, the relative contribution of family labor supply to household consumption smoothing decreases from roughly 60% in the unitary model to 30% in the non-unitary model. This is because the added worker effect -- the increase in spousal labor supply following an adverse shock to a partner -- is much milder in the non-unitary specification. Non-stationary income processes are standard in quantitative life-cycle models, prompted by the observation that within-cohort income inequality increases with age. The last chapter generalizes Tauchen's (1986) and Rouwenhorst's (1995) discretization methods to non-stationary AR(1) processes. We evaluate the performance of both methods in the context of a canonical finite-horizon, income-fluctuation problem with a non-stationary income process. We find that the generalized Rouwenhorst's method performs extremely well even with a small number of states.

Text

2017-07-25

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/62427

Economics

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/