HOUSEHOLD BEHAVIOR AND THE DYNAMICS OF INEQUALITY

Transcription

1 HOUSEHOLD BEHAVIOR AND THE DYNAMICS OF INEQUALITY Richard Bunde UCL & IFS EPoS CRC October RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

2 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY Many dimensions to economic inequaity: wages earnings famiy earnings income consumption weath RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

3 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY Many dimensions to economic inequaity: wages earnings famiy earnings income consumption weath The ink between these various measures is mediated by mutipe insurance mechanisms: Labor suppy, etc. (wages earnings) Famiy abour suppy, assortative matching and famiy time aocations (earnings famiy earnings) Taxes, wefare and socia insurance (earnings net income) Saving and borrowing (income consumption weath) don t forget nonseparabiities! Networks, gifts and other mechanisms. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

4 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY Many dimensions to economic inequaity: wages earnings famiy earnings income consumption weath The ink between these various measures is mediated by mutipe insurance mechanisms: Labor suppy, etc. (wages earnings) Famiy abour suppy, assortative matching and famiy time aocations (earnings famiy earnings) Taxes, wefare and socia insurance (earnings net income) Saving and borrowing (income consumption weath) don t forget nonseparabiities! Networks, gifts and other mechanisms. The aim of this research is to deveop a framework for uncovering the roe of these mechanisms, primariy during working ife. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

5 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY Many dimensions to economic inequaity: wages earnings famiy earnings income consumption weath The ink between these various measures is mediated by mutipe insurance mechanisms: Labor suppy, etc. (wages earnings) Famiy abour suppy, assortative matching and famiy time aocations (earnings famiy earnings) Taxes, wefare and socia insurance (earnings net income) Saving and borrowing (income consumption weath) don t forget nonseparabiities! Networks, gifts and other mechanisms. The aim of this research is to deveop a framework for uncovering the roe of these mechanisms, primariy during working ife. To expore the distributiona dynamics from wages through to consumption... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

6 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY Two key motivating issues: faing rea earnings for ow skied, especiay men, growing earnings inequaity. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

7 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY Two key motivating issues: faing rea earnings for ow skied, especiay men, growing earnings inequaity. These, in turn, pace increasing pressure on government revenues (UK and US exampes). Requiring the design of appropriate poicy responses. Some background figures... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

8 Rea 2010 Doars Mae Median Rea Wages by Education in the US Survey Year Graduate Schoo Some Coege Less than High Schoo Coege High Schoo Ony Notes: CPS, Ages 25-55; Source: Bunde, Norris-Keier and Ziiak (2017) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

9 Percent Earnings Change by Education and Gender, US Mae Less than High Schoo Some Coege Graduate Schoo Femae High Schoo Ony Coege Notes: CPS, rea median earnings , Ages Source: Bunde, Norris-Keier and Ziiak (2017) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

10 Growth in UK mae weeky earnings: 1994/ /16 Source: Bunde, Joyce, Norris Keier and Ziiak (2018) Data used is UK FRS and RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

11 Growth in UK mae houry wages: 1994/ /16 Source: Bunde, Joyce, Norris Keier and Ziiak (2018) Data used is UK FRS and RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

12 Mae hours of work in the UK by wage quintie: 1994/ /16 Source: Bunde, Joyce, Norris Keier and Ziiak (2018) Data used is UK FRS and RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

13 Growth in UK mae and femae earnings: 1994/ /16 Source: Bunde, Joyce, Norris Keier and Ziiak (2018) Data used is UK FRS and RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

14 Growth in UK househod earnings: 1994/ /16 Source: Bunde, Joyce, Norris Keier and Ziiak (2018) Data used is UK FRS and RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

15 Growth in UK househod post-tax income: 1994/ /16 Source: Bunde, Joyce, Norris Keier and Ziiak (2018) Data used is UK FRS and RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

16 Growth in UK tax and wefare expenditure: 1994/95 > Source: Bunde, Joyce, Norris Keier and Ziiak (2018). DWP cacuations pus IFS. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

17 UK tax and wefare poicy responses Source: Bunde, Joyce, Norris Keier and Ziiak (2018). IFS cacuations. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

18 Trends in Percenties of Rea Log Daiy Wages for West German Men Notes: Percenties of og rea daiy wage for fu-time mae workers on their main job, deviated from vaue of same percentie in 1996 and mutipied by 100. Source: Card, Heining and Kine (2013). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

19 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY => The aim of this work here is to expore the mechanisms famiies and househods use to accommodate (adverse) abour market shocks, and to assess the effectiveness of the tax and wefare system. Much of the materia here is coauthored and draws from work on deveoping the partia insurance approach to inking across mutipe dimensions of economic inequaity. Summarised in my Nemmers Lecture, revising on my webpage. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

20 HOUSEHOLD BEHAVIOUR AND THE DYNAMICS OF INEQUALITY => The aim of this work here is to expore the mechanisms famiies and househods use to accommodate (adverse) abour market shocks, and to assess the effectiveness of the tax and wefare system. Much of the materia here is coauthored and draws from work on deveoping the partia insurance approach to inking across mutipe dimensions of economic inequaity. Summarised in my Nemmers Lecture, revising on my webpage. Driven by a data revoution in empirica microeconomics... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

21 NEW DATA ON CONSUMPTION, ASSETS AND INCOME I. Administrative inked data: e.g. Norwegian popuation register. Linked registry databases with unique individua identifiers. Containing records for every Norwegian from 1967 to Detaied socioeconomic information (market income, cash transfers). Recent inks to financia transactions data on rea estate and assets; and to hours of work new consumption measurements. Famiy identifiers aow to match spouses and chidren. see Bunde, Graber and Mogstad (2015). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

22 NEW DATA ON CONSUMPTION, ASSETS AND INCOME I. Administrative inked data: e.g. Norwegian popuation register. Linked registry databases with unique individua identifiers. Containing records for every Norwegian from 1967 to Detaied socioeconomic information (market income, cash transfers). Recent inks to financia transactions data on rea estate and assets; and to hours of work new consumption measurements. Famiy identifiers aow to match spouses and chidren. see Bunde, Graber and Mogstad (2015). II. Newy designed pane surveys: e.g. PSID Coection of consumption and assets had a major revision in 1999 ~70% of consumption expenditures. Around 90% from Food at home, food away from home, gasoine, heath, transportation, utiities, cothing, etc with choice of purchase frequency. Earnings and hours for a earners; Assets measured in each wave. see Bunde, Pistaferri and Saporta-Eksten (2016). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

23 THE PARTIAL INSURANCE APPROACH Begin with modeing the dynamics of income as two atent components: a permanent (or persistent) component, a transitory (or mean-reverting) component. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

24 THE PARTIAL INSURANCE APPROACH Begin with modeing the dynamics of income as two atent components: a permanent (or persistent) component, a transitory (or mean-reverting) component. New pane data methods to isoate these two components, their variance-covariance structure and aso their compete distributions. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

25 THE PARTIAL INSURANCE APPROACH Begin with modeing the dynamics of income as two atent components: a permanent (or persistent) component, a transitory (or mean-reverting) component. New pane data methods to isoate these two components, their variance-covariance structure and aso their compete distributions. There is aso good economic reasoning behind this decomposition: persistent shocks to income are more difficut to insure, especiay the young with ow assets. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

26 THE PARTIAL INSURANCE APPROACH Begin with modeing the dynamics of income as two atent components: a permanent (or persistent) component, a transitory (or mean-reverting) component. New pane data methods to isoate these two components, their variance-covariance structure and aso their compete distributions. There is aso good economic reasoning behind this decomposition: persistent shocks to income are more difficut to insure, especiay the young with ow assets. How famiies cope with persistent shocks and the impications for inequaity is the main focus. 1 First, ook at some baseine partia insurance resuts, 2 Second, examine the importance of noninear persistence, 3 Third, unpack the roe of famiy abour suppy and time use. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

27 A BASELINE MODEL OF INCOME DYNAMICS Write og income for househod i in time period t, is as y it = Z it ϕ + η it + ε it RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

28 A BASELINE MODEL OF INCOME DYNAMICS Write og income for househod i in time period t, is as y it = Z it ϕ + η it + ε it where η it is a process of permanent/persistent shocks, η it = ρη it 1 + v it and where ε it is a transitory shock, some ow order MA process. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

29 A BASELINE MODEL OF INCOME DYNAMICS Write og income for househod i in time period t, is as y it = Z it ϕ + η it + ε it where η it is a process of permanent/persistent shocks, η it = ρη it 1 + v it and where ε it is a transitory shock, some ow order MA process. A key consideration is to aow the distributions of the atent persistent and transitory factors ( η t and ε t ) to vary with age/time for each birth cohort. Recent work reates these to heath shocks, outside offers and job to job changes. Return to this. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

30 A BASELINE MODEL OF INCOME DYNAMICS Write og income for househod i in time period t, is as y it = Z it ϕ + η it + ε it where η it is a process of permanent/persistent shocks, η it = ρη it 1 + v it and where ε it is a transitory shock, some ow order MA process. A key consideration is to aow the distributions of the atent persistent and transitory factors ( η t and ε t ) to vary with age/time for each birth cohort. Recent work reates these to heath shocks, outside offers and job to job changes. Return to this. Simpe but can be very reveaing - detaied work on Norwegian popuation register pane data... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

31 variance of permanent shocks NORWEGIAN POPULATION REGISTER DATA Variance of permanent shocks to income age market income Source: Bunde, Graber and Mogstad (2015). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

32 variance of permanent shocks NORWEGIAN POPULATION REGISTER DATA Variance of permanent shocks to income age market income disposabe income Source: Bunde, Graber and Mogstad (2015). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

33 variance of permanent shocks NORWEGIAN POPULATION REGISTER DATA Variance of permanent shocks to income age market income disposabe income famiy disposabe income Source: Bunde, Graber and Mogstad (2015). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

34 variance of permanent shocks NORWEGIAN POPULATION REGISTER DATA Variance of permanent shocks to income (ow skied) age market income disposabe income famiy disposabe income Source: Bunde, Graber and Mogstad (2015). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

35 PARTIAL INSURANCE: LINKING INCOME AND CONSUMPTION INEQUALITY Introduce transmission or partia insurance parameters, writing consumption growth as: n C it = γit + Z it ϕ + φ t v it + ψ t ε it + ξ it where φ t and ψ t can be individua specific and provide the ink between the consumption and income distributions - v it the persistent and ε it the transitory shock to income. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

36 PARTIAL INSURANCE: LINKING INCOME AND CONSUMPTION INEQUALITY Introduce transmission or partia insurance parameters, writing consumption growth as: n C it = γit + Z it ϕ + φ t v it + ψ t ε it + ξ it where φ t and ψ t can be individua specific and provide the ink between the consumption and income distributions - v it the persistent and ε it the transitory shock to income. For exampe, in a simpe benchmark intertempora consumption mode for consumer of age t φ t = (1 π it ) and ψ t = (1 π it )γ Lt where Assets π it it. Assets it + Human Weath it We generaise this framework: taxes, wefare benefits, and other mechanisms to examine US and Norwegian data. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

37 CONSUMPTION IN THE NORWEGIAN REGISTER DATA The anaysis combines severa data sources for the period Tax records on income and weath Rea estate transactions from Norwegian Land Register Transactions in isted and unisted stocks from Norwegian Registry of Securities. The initia sampe covers a househods where the househod s odest is at east 18 years od, everyone above 17 years has fied a tax return The number of househod-year observations in the initia pane is 44,302,000. In each year, we keep ony househods with a mae head, age 30-60, cohort , with non-missing information on schooing and ocation. Detaied description of the dataset and consumption measurement in Eika, Mogstad and Vestad (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

38 φ PARTIAL INSURANCE AND THE TRANSMISSION OF PERMANENT INCOME SHOCKS Norway , High Ski age market househod market income househod disposabe income Source: Bunde, Graber and Mogstad (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

39 1 π ASSET SHARES OUT OF ASSET AND HUMAN WEALTH: Norway , High Ski, π i,t Assets i,t Assets i,t +Human Weath i,t age Source: Bunde, Graber and Mogstad (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

40 Consumption inequaity in Norway by age, ow skied. Socia insurance takes most of the strain in insuring consumption fuctuations. Litte roe for sef-insurance or other channes var iance og consumption age Notes: Variance og consumption. Consumption measured using income sources, taxes paid, bank baances, rea estate and asset transactions. Source: Bunde, Graber and Mogstad (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

41 PARTIAL INSURANCE TO PERMANENT SHOCKS PSID: , average transmission coefficients. 1 Main sam pe 1 Low education 1 Low assets Labor Disposabe 0 Labor Disposabe 0 Labor Disposabe Source: Areano, Bunde, Bonhomme and Light (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

42 TRANSMISSION PARAMETERS AND PARTIAL INSURANCE The parameters φ t and ψ t ink the evoution of consumption inequaity to income inequaity. - They indicate the degree of partia insurance. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

43 TRANSMISSION PARAMETERS AND PARTIAL INSURANCE The parameters φ t and ψ t ink the evoution of consumption inequaity to income inequaity. - They indicate the degree of partia insurance. Typicay (1 π it ) averages at around.82 in US data. This woud be the transmission parameter with sef-insurance aone. Using the US PSID data, BPP estimates of partia insurance, φ t : (.09) overa, (.13) for the sampe without coege education, and (.18) for those born in the 1940s. The estimate fas by more than 30% if we excude taxes, EITC and food stamps for the no coege group. For a ow weath sampe φ t is.8489 and there are significant impacts of transitory fuctuations in income too. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

44 DIGGING DEEPER... These have proven to be usefu resuts, inking the distributiona dynamics of income and consumption. With key resuts on the vaue of sef-insurance and wefare transfers. Perhaps a itte too much insurance, especiay in the PSID. I want to briefy highight two important directions/issues to expore: 1 The income process: usua shocks and noninear persistence. 2 Other mechanisms: famiy abor suppy and time use with chidren, and separate out the roe of assets and of taxation and wefare benefits. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

45 DIGGING DEEPER... These have proven to be usefu resuts, inking the distributiona dynamics of income and consumption. With key resuts on the vaue of sef-insurance and wefare transfers. Perhaps a itte too much insurance, especiay in the PSID. I want to briefy highight two important directions/issues to expore: 1 The income process: usua shocks and noninear persistence. 2 Other mechanisms: famiy abor suppy and time use with chidren, and separate out the roe of assets and of taxation and wefare benefits. Advance information coud be a key issue too. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

46 1. NONLINEAR PERSISTENCE AND PARTIAL INSURANCE Recent descriptive evidence on the dynamics of inequaity in arge administrative data points to outying shocks that can change the persistence of income: For exampe, an unusuay bad shock, to those on higher permanent income, can wipe out their permanent income history. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

47 1. NONLINEAR PERSISTENCE AND PARTIAL INSURANCE Recent descriptive evidence on the dynamics of inequaity in arge administrative data points to outying shocks that can change the persistence of income: For exampe, an unusuay bad shock, to those on higher permanent income, can wipe out their permanent income history. Need a mode of income dynamics that accounts for the position in the (permanent) income distribution and the size/sign of shock. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

48 1. NONLINEAR PERSISTENCE AND PARTIAL INSURANCE Recent descriptive evidence on the dynamics of inequaity in arge administrative data points to outying shocks that can change the persistence of income: For exampe, an unusuay bad shock, to those on higher permanent income, can wipe out their permanent income history. Need a mode of income dynamics that accounts for the position in the (permanent) income distribution and the size/sign of shock. We deveop a new framework that aows unusua shocks to wipe out the memory of past shocks, and future persistence of a current shock to depend on the future shocks. Show this has important impications for income inequaity and partia insurance. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

49 1. NONLINEAR PERSISTENCE AND PARTIAL INSURANCE Recent descriptive evidence on the dynamics of inequaity in arge administrative data points to outying shocks that can change the persistence of income: For exampe, an unusuay bad shock, to those on higher permanent income, can wipe out their permanent income history. Need a mode of income dynamics that accounts for the position in the (permanent) income distribution and the size/sign of shock. We deveop a new framework that aows unusua shocks to wipe out the memory of past shocks, and future persistence of a current shock to depend on the future shocks. Show this has important impications for income inequaity and partia insurance. Evidence of such noninearity? RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

50 persistence Noninear Persistence in the PSID percentie τ init percentie τ shock 1 Notes: Househod abor earnings, Age (US). Estimates of the average derivative of the conditiona quantie function. Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

51 persistence Noninear Persistence in the Norwegian Register Data percentie τ init percentie 0.6 τ shock Notes: Norwegian Popuation Register, Famiy Labour Income. Estimates of the average derivative of the conditiona quantie function. Source: Bunde, Graber and Mogstad (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

52 INCOME SHOCKS AND NONLINEAR PERSISTENCE A twist to the standard permanent-transitory mode: aow for noninear persistence in the permanent component η it. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

53 INCOME SHOCKS AND NONLINEAR PERSISTENCE A twist to the standard permanent-transitory mode: aow for noninear persistence in the permanent component η it. The persistence of shocks to η it depend on the sign and size of the shock; and aso eve of η it 1, RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

54 INCOME SHOCKS AND NONLINEAR PERSISTENCE A twist to the standard permanent-transitory mode: aow for noninear persistence in the permanent component η it. The persistence of shocks to η it depend on the sign and size of the shock; and aso eve of η it 1, represented by a conditiona quantie mode η it = Q t (η it 1, u it ) - quite different from the standard mode of income dynamics, - quantie functions are specified as fexibe Hermite poynomias. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

55 INCOME SHOCKS AND NONLINEAR PERSISTENCE A twist to the standard permanent-transitory mode: aow for noninear persistence in the permanent component η it. The persistence of shocks to η it depend on the sign and size of the shock; and aso eve of η it 1, represented by a conditiona quantie mode η it = Q t (η it 1, u it ) - quite different from the standard mode of income dynamics, - quantie functions are specified as fexibe Hermite poynomias. And deivering a new measure of noninear persistence: ρ t (η it 1, τ) = Q t(η it 1, τ) η RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

56 INCOME SHOCKS AND NONLINEAR PERSISTENCE A twist to the standard permanent-transitory mode: aow for noninear persistence in the permanent component η it. The persistence of shocks to η it depend on the sign and size of the shock; and aso eve of η it 1, represented by a conditiona quantie mode η it = Q t (η it 1, u it ) - quite different from the standard mode of income dynamics, - quantie functions are specified as fexibe Hermite poynomias. And deivering a new measure of noninear persistence: ρ t (η it 1, τ) = Q t(η it 1, τ) η Use this noninear framework to expore the compete distributiona dynamics of income over the ife-cyce, and then the impications for consumption and savings decisions... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

57 persistence Persistence in η it percentie τ init percentie τ shock 1 Notes: PSID Househod abor earnings, Age (US). Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

58 persistence Impied Mode Simuation of Persistence in Income percentie τ init percentie τ shock 1 Notes: PSID Househod abor earnings, Age (US). Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

59 persistence Confidence Intervas for Estimated Noninear Persistence percentie τ init percentie τ shock 1 Notes: PSID; 95% CI for estimated average derivative of the conditiona quantie function see source paper; parametric bootstrap. Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

60 persistence Impied Mode Simuation of Persistence in Norwegian Income percentie τ init percentie τ shock 1 Notes: Norwegian Popuation Register, Famiy Labour Income. Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

61 IMPLICATIONS FOR THE CONSUMPTION DISTRIBUTION Aow the permanent and transitory income components to interact with assets, age and individua heterogeneity: c it = g t (A it 1, η it, ε it, ν it, ξ i ) -> assets A it 1, permanent income η it, transitory shocks ε it, taste differences ν it, ξ i. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

62 IMPLICATIONS FOR THE CONSUMPTION DISTRIBUTION Aow the permanent and transitory income components to interact with assets, age and individua heterogeneity: c it = g t (A it 1, η it, ε it, ν it, ξ i ) -> assets A it 1, permanent income η it, transitory shocks ε it, taste differences ν it, ξ i. Show identification of g t and estimate a more genera definition of partia insurance: [ ] gt (A, η, ε, v) φ t (A, η, ε) = E, η [ ] and E g t (A, Q t (η, τ), ε, v) = φ u t (A, Q t (η, τ), ε) Q t(η, τ) u=τ u RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

63 IMPLICATIONS FOR THE CONSUMPTION DISTRIBUTION Aow the permanent and transitory income components to interact with assets, age and individua heterogeneity: c it = g t (A it 1, η it, ε it, ν it, ξ i ) -> assets A it 1, permanent income η it, transitory shocks ε it, taste differences ν it, ξ i. Show identification of g t and estimate a more genera definition of partia insurance: [ ] gt (A, η, ε, v) φ t (A, η, ε) = E, η [ ] and E g t (A, Q t (η, τ), ε, v) = φ u t (A, Q t (η, τ), ε) Q t(η, τ) u=τ u Tracking the impact of a change in permanent income on consumption for different eves of assets and for different ages... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

64 consum ption response consum ption response Partia Insurance by Age and Assets Labor income Disposabe income percentie age percentie assets percentie age percentie assets 1 Notes: Famiies with head aged 30-60, (US). Nonparametric estimates of the average partia insurance of persistent shocks. Source: Areano, Bunde, Bonhomme and Light (2018). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

65 og consumption Consumption responses for oder worker (high income [90th], bad shock [10th]) age Notes: Impuse response of persistent shock; 90th percentie of permanent income, 10th percentie shock; 25th percentie (bue) and 75th percentie (green) of assets. Famiies with head aged 50-60, (US). Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

66 og consumption Consumption responses for younger worker (high income [90th], bad shock [10th]) age Notes: Impuse response of persistent shock; 90th percentie of permanent income, 10th percentie shock; 25th percentie (bue) and 75th percentie (green) of assets. Famiies with head aged 35-60, (US). Source: Areano, Bunde and Bonhomme (2017). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

67 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Separate abour suppy, tax/benefit and sef-insurance mechanisms: RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

68 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Separate abour suppy, tax/benefit and sef-insurance mechanisms: 1 Labour suppy of other famiy members, 2 Non-inear taxes and wefare, 3 Sef-insurance (i.e., savings) through the direct use of net assets, 4 Other informa mechanisms and networks... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

69 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Separate abour suppy, tax/benefit and sef-insurance mechanisms: 1 Labour suppy of other famiy members, 2 Non-inear taxes and wefare, 3 Sef-insurance (i.e., savings) through the direct use of net assets, 4 Other informa mechanisms and networks... - Extend baseine partia insurance mode to aow wage shocks to impact on consumption and on famiy abour suppy, - aowing for correated wage shocks, nonseparabiities in famiy abor suppy and for redistribution/insurance in tax and wefare system -> RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

70 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Aow for correated shocks to spouses individua wages assortative matching (and data) suggests positive correation, no insurance through wages! RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

71 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Aow for correated shocks to spouses individua wages assortative matching (and data) suggests positive correation, no insurance through wages! Leisure preferences tend to dispay compementarity ike each others company - oving or caring preferences, no insurance there either! RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

72 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Aow for correated shocks to spouses individua wages assortative matching (and data) suggests positive correation, no insurance through wages! Leisure preferences tend to dispay compementarity ike each others company - oving or caring preferences, no insurance there either! Frisch compements but Marshaian substitutes! even with correated wages and compementary preferences, find a persistent decine in one spouse earnings to induce an increase earnings of the other to maintain consumption. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

73 2. WHAT ROLE FOR FAMILY LABOUR SUPPLY? Aow for correated shocks to spouses individua wages assortative matching (and data) suggests positive correation, no insurance through wages! Leisure preferences tend to dispay compementarity ike each others company - oving or caring preferences, no insurance there either! Frisch compements but Marshaian substitutes! even with correated wages and compementary preferences, find a persistent decine in one spouse earnings to induce an increase earnings of the other to maintain consumption. For exampe, a persistent shock to his wages wi depend on preferences over abour suppy and consumption, on net assets and on how important his earnings are in famiy earnings... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

74 CONSUMPTION SMOOTHING RESPONSES Use noninear method of moments on extended partia insurance mode, e.g. Extent of consumption smoothing w.r.t. j s permanent wage shock: ) (1 + ε hj,w j ε c,p φ c,ηj = (1 β) (1 π i,t ) s i,j,t ε c,p + (1 β) (1 π i,t ) ε h,w decines with s i,j,t (j s earnings pay heavier weight) increases with π i,t (accumuated assets aow better insurance of shocks) increases with β (outside insurance aows more smoothing) decines with ε c,p (consumers more toerant of intertempora fuctuations in consumption) increases with ε h j,w j ("added worker" effect). Extend to aow for nonseparabiities and noninear taxation. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

75 s The share of his human weath by age s i,t Human Weath mae,i,t Human Weath i,t Age of househod head Notes: PSID. Source: Bunde, Pistaferri and Saporta-Eksten (2016) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

76 The distribution of his human weath by age s i,t Human Weath mae,i,t Human Weath i,t : Source: Bunde, Pistaferri and Saporta-Eksten (2016) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

77 Pi Tota Assets (Thousands of Doars) The share of assets to human weath by age π i,t Assets i,t Assets i,t +Human Weath i,t Age of househod head Pi Tota Assets (Thousands of Doars) Source: Bunde, Pistaferri and Saporta-Eksten (2016) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

78 The Distribution of assets to human weath by age π i,t Assets i,t Assets i,t +Human Weath i,t RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

79 HOUSEHOLD CONSUMPTION RESPONSES Response of Consumption to a 10% Permanent Decrease in the Mae's Wage Rate Age of househod head fixed abor suppy, no savings adjustment (pre tax and transfers) fixed abor suppy, no savings adjustment (post tax and transfers) with famiy abor suppy adjustment, no savings adjustment with famiy abor suppy and savings adjustments Average response. Source: Bunde, Pistaferri and Saporta-Eksten (2017) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

80 CONSUMPTION INSURANCE FOR SNAP GROUP Response of Consumption to a 10% Permanent Decrease in the Mae's Wage Rate SNAP Eigibe Sampe Age of househod head fixed abor suppy, no savings adjustment (pre tax and transfers) fixed abor suppy, no savings adjustment (post tax and transfers) with famiy abor suppy adjustment, no savings adjustment with famiy abor suppy and savings adjustments Source: Bunde, Pistaferri and Saporta-Eksten (2017) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

81 FINDINGS... Unpack the roe of assets, tax/benefits and famiy abor suppy as mechanisms for insuring unexpected persistent shocks, famiy abour suppy is important for younger famiies and for those with imited access to assets, eisure time turns out to be a Frisch compement but a Marshaian substitute. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

82 FINDINGS... Unpack the roe of assets, tax/benefits and famiy abor suppy as mechanisms for insuring unexpected persistent shocks, famiy abour suppy is important for younger famiies and for those with imited access to assets, eisure time turns out to be a Frisch compement but a Marshaian substitute. For the food stamps eigibe famiies: consumption decines on average by ony 2.1% for a 10% fa in mae earnings transfers dominate with famiy abor suppy responses making up the difference, 71 percentage points of the tota insurance effect some from government transfers, the rest from famiy abor suppy, with negigibe insurance from savings. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

83 FINDINGS... Unpack the roe of assets, tax/benefits and famiy abor suppy as mechanisms for insuring unexpected persistent shocks, famiy abour suppy is important for younger famiies and for those with imited access to assets, eisure time turns out to be a Frisch compement but a Marshaian substitute. For the food stamps eigibe famiies: consumption decines on average by ony 2.1% for a 10% fa in mae earnings transfers dominate with famiy abor suppy responses making up the difference, 71 percentage points of the tota insurance effect some from government transfers, the rest from famiy abor suppy, with negigibe insurance from savings. But where do these hours adjustments come from? RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

84 IMPLICATIONS FOR FAMILY TIME-USE ALLOCATIONS Recent work, Bunde, Pistaferri and Saporta-Eksten (2018), use time-use data (ATUS and CDS) to unpack what s going on. Deveop a househod production mode where time, suppy and consumption can be compements or substitutes, aowing expicity for extensive margins and borrowing constraints. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

85 IMPLICATIONS FOR FAMILY TIME-USE ALLOCATIONS Recent work, Bunde, Pistaferri and Saporta-Eksten (2018), use time-use data (ATUS and CDS) to unpack what s going on. Deveop a househod production mode where time, suppy and consumption can be compements or substitutes, aowing expicity for extensive margins and borrowing constraints. A tension between the desire of spouses to spend eisure time with each other, and the speciaization in care of chidren, compementarity in eisure but speciaization in chidcare. Find that famiy abour suppy fips between being substitutes to compements as the chid ages, aso show, especiay for ower educated/ow assets, it is mother s time with chidren that takes a hit foowing adverse shock to husbands earnings... RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

86 Mother s abor suppy response to a persistent adverse shock (10%) to husband s earnings 0.06 Hours and empoyment (Wife) Extensive margin Intensive margin Notes: ATUS and PSID; Source: Bunde, Pistaferri and Saporta-Eksten (2018) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

87 Mother s time with chidren response to a persistent adverse shock to husband s earnings 0.06 Time with chidren (Wife) Notes: ATUS and PSID; Source: Bunde, Pistaferri and Saporta-Eksten (2018) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

88 persistence...note, Noninear Persistence remains a key feature for mae wages percentie τ init percentie τ shock 1 Notes: Log mae wages, Age (US). Estimates of the average derivative of the conditiona quantie function. Source: Areano, Bunde and Bonhomme (2017b). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

89 GATHERING UP THE RESULTS... Focus on understanding the transmission of inequaity over the working ife: wages earnings joint earnings income consumption. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

90 GATHERING UP THE RESULTS... Focus on understanding the transmission of inequaity over the working ife: wages earnings joint earnings income consumption. Finding a key roe for unusua shocks and noninear persistence (these extend to wages). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

91 GATHERING UP THE RESULTS... Focus on understanding the transmission of inequaity over the working ife: wages earnings joint earnings income consumption. Finding a key roe for unusua shocks and noninear persistence (these extend to wages). Documenting the importance of different aspects of househod behavior and of tax/wefare poicy: Labor suppy, etc. (wages earnings) Famiy abour suppy and time-use aocations (earnings famiy earnings) Taxes and wefare (earnings net income) Saving and borrowing (income consumption weath). RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

92 GATHERING UP THE RESULTS... Focus on understanding the transmission of inequaity over the working ife: wages earnings joint earnings income consumption. Finding a key roe for unusua shocks and noninear persistence (these extend to wages). Documenting the importance of different aspects of househod behavior and of tax/wefare poicy: Labor suppy, etc. (wages earnings) Famiy abour suppy and time-use aocations (earnings famiy earnings) Taxes and wefare (earnings net income) Saving and borrowing (income consumption weath). Showing the vaue, of high quaity data on househod earnings, hours, consumption and assets. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

93 GATHERING UP THE RESULTS... Focus on understanding the transmission of inequaity over the working ife: wages earnings joint earnings income consumption. Finding a key roe for unusua shocks and noninear persistence (these extend to wages). Documenting the importance of different aspects of househod behavior and of tax/wefare poicy: Labor suppy, etc. (wages earnings) Famiy abour suppy and time-use aocations (earnings famiy earnings) Taxes and wefare (earnings net income) Saving and borrowing (income consumption weath). Showing the vaue, of high quaity data on househod earnings, hours, consumption and assets. Drawing from inked administrative popuation register data and carefuy coected pane data surveys. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

94 BUT MORE TO BE DONE! New work, post-recession. Interacting impact on housing asset vaues and oca abour market shocks. Locay inked data in Norway and, hopefuy, PSID. Human capita during working ife - BCMS (2016) show itte experience effects for ower skied - new inkages to training data in UK data. Firms, technoogy and wage progression - firm inked data in Norway. Disabiity and persistent heath shocks - inked to medica expenditures and heath insurance. Famiy formation and extended famiy - reationship inks. Durabe goods and roe as coatera - inked to car transaction data in Denmark. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

95 REFERENCES TO PAPERS 1 Bunde, Pistaferri and Preston [BPP] Consumption inequaity and partia insurance (AER, 2008) 2 Bunde, Low and Preston [BLP] Decomposing changes in income risk using consumption data (QE, 2013) 3 Bunde, Graber and Mogstad [BGM] Labor income dynamics and insurance (JPubE, 2015; 2018) 4 Areano, Bunde and Bonhomme [ABB] Earnings and consumption dynamics: a noninear framework (Ecta, 2017; 2018) 5 Bunde, Pistaferri and Saporta-Eksten [BPS1/2] Consumption inequaity and famiy abor suppy (AER, 2016; JPE, 2018) 6 Bunde, Costa-Dias, Meghir and Shaw [BCMS] Femae abour suppy, human capita and wefare reform (Ecta, 2016). a on my webpage! RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

96 That s it for now! Richard Bunde UCL & IFS EPoS CRC October 2018 RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

97 MEASURING CONSUMPTION Let W ikt = p kt A ikt, tota househod consumption expenditure: ( ) C it = E it τ it + r kt A ikt 1 } k {{ } disposabe income (W ikt W ikt 1 )+ (p kt p kt 1 )A ikt 1 k } {{ k }} {{ } } changes in weath capita gains {{ } net savings where Y it : abour income and cash transfers τ it : taxes A it 1 : assets hed at the end of period t 1. Combining the ast two terms using financia and rea estate transactions data has been a key insight. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

98 TRANSMISSION PARAMETERS AND PARTIAL INSURANCE The parameters φ t and ψ t ink the evoution of consumption inequaity to income inequaity. - They indicate the degree of partia insurance. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

99 TRANSMISSION PARAMETERS AND PARTIAL INSURANCE The parameters φ t and ψ t ink the evoution of consumption inequaity to income inequaity. - They indicate the degree of partia insurance. Typicay (1 π it ) averages at around.82 in US data. This woud be the transmission parameter with sef-insurance aone. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

100 TRANSMISSION PARAMETERS AND PARTIAL INSURANCE The parameters φ t and ψ t ink the evoution of consumption inequaity to income inequaity. - They indicate the degree of partia insurance. Typicay (1 π it ) averages at around.82 in US data. This woud be the transmission parameter with sef-insurance aone. Using the US PSID data, BPP (2008) estimates of partia insurance, φ t : (.09) overa, (.13) for the sampe without coege education, and (.18) for those born in the 1940s. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

101 TRANSMISSION PARAMETERS AND PARTIAL INSURANCE The parameters φ t and ψ t ink the evoution of consumption inequaity to income inequaity. - They indicate the degree of partia insurance. Typicay (1 π it ) averages at around.82 in US data. This woud be the transmission parameter with sef-insurance aone. Using the US PSID data, BPP (2008) estimates of partia insurance, φ t : (.09) overa, (.13) for the sampe without coege education, and (.18) for those born in the 1940s. The estimate fas by 50% if we excude taxes, EITC and food stamps for the no coege group. For a ow weath sampe φ t is.8489 and there are significant impacts of transitory fuctuations in income too. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

102 Expenditure per Capita, Non-Medicaid Means Tested Programs, US. Source: Moffitt (2016); SNAP, EITC and SSI, [note AFDC/TANF]. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

103 PARTIAL INSURANCE ACROSS THE ATLANTIC Traveing back across the Atantic... to the PSID Our main sampe consists of (stabe) married / cohabiting househods drawn from the non-seo component of the PSID for the years (approximatey 2,500 househods each year). The biennia nature of the PSID gives 9 waves from which we construct a non-baanced pane of househod heads aged Consumption data is a tribute to Bob Schoeni (Michigan). Loca zip codes can aso be used to add housing vaues and oca abour markets as in our work on Norway. RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

104 CONSUMPTION INSURANCE AND TIME USE Famiy response to a persistent adverse shock (10%) to husband s earnings Famiies with ow assets. Notes: ATUS and PSID; Source: Bunde, Pistaferri and Saporta-Eksten (2017) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

105 DISTRIBUTION OF ASSETS FOR SNAP GROUP Source: Bunde, Pistaferri and Saporta-Eksten (2018) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82

106 CONSUMPTION INSURANCE FOR LOW EDUC GROUP Response of Consumption to a 10% Permanent Decrease in the Mae's Wage Rate Less than HS Age of househod head fixed abor suppy, no savings adjustment (pre tax and transfers) fixed abor suppy, no savings adjustment (post tax and transfers) with famiy abor suppy adjustment, no savings adjustment with famiy abor suppy and savings adjustments Source: Bunde, Pistaferri and Saporta-Eksten (2018) RICHARD BLUNDELL (UCL & IFS) HOUSEHOLD BEHAVIOR AND INEQUALITY EPOS CRC OCTOBER / 82