Working Paper: NBER ID: w23948
Authors: Howard Bodenhorn
Abstract: Theories of household saving posit that households add to or draw down wealth to equalize the discounted presented value of consumption over time. This paper examines the extent to which nineteenth-century urban American industrial workers used saving and dissaving to smooth consumption in response to unanticipated, plausibly exogenous, shocks to income. Information on the expected and unexpected number of days unemployed is used to construct estimates of transitory income. The data are then used to estimate the marginal propensity to save from transitory income, and the results are broadly consistent with Friedman’s (1957) permanent income hypothesis.
Keywords: Household saving; Permanent income hypothesis; Nineteenth-century workers
JEL Codes: D15; N21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income variability (D31) | household saving rates (D14) |
| unexpected unemployment (J65) | household saving rates (D14) |
| transitory income (F29) | household saving rates (D14) |
| transitory income (F29) | consumption smoothing (D15) |
| employment shocks (J63) | transitory income (F29) |