How important is intra-household risk sharing for savings and labor supply?

While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who make collective decisions on consumption, savings and labor supplies. We find that intra-household risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, for low-wealth households, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives’ hours makes up 9% of lost family income. We also study the crowding out effects of public unemployment insurance on other sources of private insurance, and consumption losses upon an unemployment spellIntra-household risk sharing, Collective household model, Idiosyncratic unemployment risk, Incomplete markets, Precautionary motive

How important is Intra-household Risk Sharing for Savings and Labor Supply?

While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who make collective decisions on consumption, savings and labor supplies. In a calibrated version of our model, we find that precautionary savings are only 55% of those generated by a similar economy that lacks access to insurance from the family. We also find that intra-household risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, in the group of households with wealth less than two months worth of income, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives’ hours makes up 9% of lost family income. We also find crowding out effects of public unemployment insurance that are comparable to those estimated from the data.Intra-household risk sharing; Collective household model; Idiosyncratic unemployment risk; Incomplete markets; Precautionary motive.

The Endless Reading of Interpretation? Said, Auerbach, and the Exilic Will to Criticism

In this paper I consider how Edward Said elaborates his concept of exile—as both a physical displacement and as a hermeneutical situation or mode of critical activity—in a transhistorical dialogue with Erich Auerbach. In his efforts to delineate the interrelation between cultural discourses and historical ‘regimes of knowledge,’ Said shows intellectual exile (which gives rise to secular criticism) to be the preliminary step in a concrete act of cultural recuperation: namely the re-appropriation and mobilization of texts, through an exilic will to interpretation and synthesis. Through a close examination of Auerbach’s ‘Philology and Weltliteratur’ and Said’s ‘Secular Criticism’ I compare the writers’ consciousness of their worldly socio-political situations, their humanistic goals, and their readings of cultural history—which they evaluate in the form of literary representations and interpretations of reality. Said locates agency in the exile’s liminal situation, his ‘unhomely’ un-belonging, which affords him a unique perspective and a certain mobility of critical thought. He believes that Auerbach, in his cultural alienation as a Jew exiled to Istanbul during World War II, adopted such a threshold position and could thus exercise precisely this exilic will to criticism as he wrote his magisterial Mimesis. Through a ‘worldly self-situating’ between inside and outside and a refusal of all binding filiations or affiliations that would limit his ability to move freely between the two spaces, the secular critic following the model of Auerbach, can mediate contrapuntally between dominant and minority culture, challenge authority, and indeed, redistribute cultural capital to produce ‘non-coercive knowledge in the interests of human freedom.’ Exilic readings thus become a tool and weapon of resistance, which simultaneously enable a critical recovery of one’s lost world and a reconstitution of the cultural mythos of ‘home,’ to impart historical, or at least aesthetic, coherence to the traumatic experience of loss

Inequality and the Marriage Gap

Marriage is one of the most important determinants of economic prosperity, yet most existing theories of inequality ignore the role of the family. This paper documents that the cross-sectional distributions of earnings and wealth display a high degree of concentration, even when disaggregated into single and married households. At the same time, there is a large marriage gap: married people earn on average 27 percent more income, and they hold 34 percent more net worth. To account for these empirical facts, I develop a theory based on an otherwise standard incomplete-markets OLG model with ex-ante identical agents, who (i) are randomly selected into single or married households at the beginning of their economic lives; (ii) face uninsurable labor market risk henceforth; (iii) and make Pareto-efficient decisions if married. In a calibrated version of the model, I show that positive assortative matching, an effective tax bonus for married couples and directed bequests are key to explaining the marriage gap in earnings and wealth. A policy experiment of moving from joint tax filing for married couples to separate filing yields output and welfare gains

How important is intra-household risk sharing for savings and labor supply?

While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who make collective decisions on consumption, savings and labor supplies. We find that intra-household risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, for low-wealth households, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives’ hours makes up 9% of lost family income. We also study the crowding out effects of public unemployment insurance on other sources of private insurance, and consumption losses upon an unemployment spel

Intrahousehold Insurance and its Implications for Macroeconomic Outcomes.

Most theoretical and empirical work on consumption, labor supply and saving decisions has been based on the paradigm that households behave as single agents. While this approach is often convenient, it relies on very restrictive assumptions. In recent years, there has been significant progress in developing a more satisfactory theory of decision making within households. The main contribution of this thesis is to explore the significance of intrahousehold risk sharing in the presence of uninsurable, idiosyncratic risk. If individuals are unable to rely on complete asset markets, the extent to which they can cope with uncertainty crucially hinges on the set of risk sharing channels. Despite its vast empirical significance, insurance from the family as one of these channels has mostly been overlooked in the literature. The first chapter investigates the significance of family insurance for savings and labor supply. An economy in which individuals can share risk within households generates aggregate precautionary savings that are substantially smaller than in a similar economy that lacks access to insurance from the family. Intrahousehold risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. The second chapter documents some stylized facts for the distributions of earnings and wealth across single and married households and presents a theoretical framework that can successfully account for the data. Assortative matching, the effective tax bonus for married couple and directed bequests are found to be key determinants for higher per-capita earnings and net worth among married individuals. The third chapter explores how intrahousehold insurance interacts with the design of unemployment benefit programs. My findings indicate that fiscal policy can take very distinct effects depending on whether intra-household risk sharing is available or not. I also find potential efficiency gains from gender-based taxation.

Anti-Poverty Income Transfers in the US - A Framework for the Evaluation of Policy Reforms

In this paper, we present a dynamic model of labor supply, consumption, savings and marital decisions where we embed the income tax schedule and the four main anti-poverty income transfer programs in the U.S. The model is calibrated to match moments from a sample of non-college-educated workers with children in the 2014 Annual Social and Economic Supplement of the Current Population Survey. We then use the model to assess the effects of three recent proposals to reform the U.S. tax-transfer system, and especially to ameliorate the disincentives introduced by the current EITC schedule to married mothers' labor force participation. The categorical and economic conditions for eligibility and benefits of the transfer programs, along with the income and payroll tax system, yield complex budget constraints and introduce a web of interactions whose effects we aim to understand and quantify

Moving Towards a Single Labor Contract: Transition vs. Steady State

This paper analyzes the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a dual labour market. We compare two economic environments: one with flexible entry-level jobs and high employment protection at long tenure, and another with a SOEC featuring employment protection levels that increase smoothly with tenure. For illustrative purposes, we specialize the discussion of such choices to Spain. A SOEC has the potential of bringing big time efficiency and welfare gains in a steady-state sense. We also identify winners and losers in the transitional path of such a reform and analyze its political support

From Dual to Unified Employment Protection: Transition and Steady State

This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market where employment protection is highly discontinuous. We develop a computationally tractable approach to compare two economic environments: one with a large employment protection gap after a short tenure, and another one with a SOEC featuring a smooth tenure profile. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a labour market with dual employment protection. We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour-market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support

From dual to unified employment protection: Transition and steady state

Three features of real-life reforms of dual employment protection legislation (EPL) systems are particularly hard to study through the lens of standard labor-market search models: (i) the excess job turnover implied by dual EPL, (ii) the nonretroactive nature of EPL reforms, and (iii) the transition dynamics from dual to a unified EPL system. In this paper, we develop a computationally tractable model addressing these issues. Our main finding is that the welfare gains of reforming a dual EPL system are sizeable and achieved mostly through a decrease in turnover at short job tenures. This conclusion continues to hold in more general settings featuring wage rigidities, heterogeneity in productivity upon matching, and human capital accumulation. We also find substantial cross-sectional heterogeneity in welfare effects along the transition to a unified EPL scheme. Given that the model is calibrated to data from Spain, often considered as the epitome of a labor market with dual EPL, our results should provide guidance for a wide range of reforms of dual EPL systems