Working Paper: NBER ID: w24166
Authors: Job Boerma; Loukas Karabarbounis
Abstract: We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and home production. Accounting for home production amplifies welfare-based differences across households meaning that inequality in standards of living is larger than we thought. Home production does not offset differences that originate in the market sector because hours working at home do not covary with consumption and wages in the cross section of households and there are significant production efficiency differences in the home sector. The optimal tax system should feature more progressivity taking into account home production.
Keywords: No keywords provided
JEL Codes: D10; D60; E21; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Time spent in home production does not negatively covary with consumption and wages (D13) | Home production does not mitigate market sector disparities (P42) |
| Optimal tax system should be more progressive when home production is considered (H31) | Household earning $200,000 faces higher average tax rate with home production (19%) than without (12%) (H31) |
| Standard deviation of equivalent variation across households increases by roughly 15% when home production is accounted for (D13) | Inequality increases (D31) |
| Transfers needed to equalize marginal utilities are about 30% higher in the model with home production (D13) | Higher inequality in welfare (D69) |
| Unborn household would sacrifice 12% of lifetime consumption to eliminate heterogeneity in an environment with home production (D15) | Higher willingness to sacrifice compared to 6% in an environment without home production (D13) |
| Incorporating home production (D13) | Inequality across households is larger than previously inferred (D31) |
| Production efficiency differences in the home sector (D13) | Exacerbates the inequality observed in market outcomes (F61) |