Inequality and the Lifecycle

By Greg Kaplan. 2011

115 citations recorded by the source corpus.

This paper investigates the sources of cross-sectional differences in consumption, labor supply, wealth and welfare over the lifecycle. I document the existence of rich and informative lifecycle patterns in the joint distribution of wages, hours, consumption and wealth. I then estimate a structural model of precautionary savings with endogenous labor supply and uninsurable wage risk in an attempt to assess the ability of the standard incomplete markets model to simultaneously account for the various dimensions of lifecycle inequality. I find that in many dimensions the model provides a coherent explanation. However, the combination of certain features of the data provides an inherent challenge for this class of models. Structural estimates of parameter values are obtained using Monte-Carlo Markov Chain techniques. These are then used to decompose inequality at different points in the lifecycle into differences in preferences, differences in initial wealth endowments, differences in fixed labor productivity and the accumulated effects of shocks realized after entry to the labor market. I find that around 40% of the cross-sectional differences in lifetime welfare are due to fixed skills and around 60% are due to lifecycle productivity shocks. Differences in financial wealth endowments, however, account for almost none of the inequality in lifetime welfare.

Subfields: Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/643886896142b9ce1bf8443ba9280a158d9e0d02

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Gender Studies

Citations in the corpus

The Distribution of Wealth and the Marginal Propensity to Consume (2017, unknown): “9 Various authors have estimated the MPC using quite different household-level data sets, in different countries, using alternative measures of consumption and diverse episodes of transitory income shocks; our reading of the literature is that while a couple of papers find MPCs near 0, most estimate”
Inferring Labor Income Risk and Partial Insurance from Economic Choices (2014, result): “…data is about 10 log points, which is small compared with that reported in earlier papers, such as Deaton and Paxson (1994), but is consistent with more recent papers that use CE data with a longer time span, such as Heathcote, Perri, and Violante (2010), Kaplan (2012), and Aguiar and Hurst (2013).”
Labor Income Dynamics and the Insurance from Taxes, Transfers, and the Family (2014, unknown): “Kaplan (2012) documents patterns in the US.”
Moving Back Home: Insurance against Labor Market Risk (2012, unknown): “In a previous version of this paper, Kaplan (2009b), I specified the parameter φ as part of the budget constraint, rather than as a preference parameter.”
Consumption Inequality and Family Labor Supply (2014, unknown): “Since age-specific cells are quite small given the size of our data set, however, we restrict the age-variation to stages of the life cycle (30-37, 38-42, 43-47, 48-52, 53-57).”