Working Paper: NBER ID: w28294
Authors: Mariacristina De Nardi; Giulio Fella; Gonzalo Pazpardo
Abstract: The extent to which households can self-insure depends on family structure and wage risk. We calibrate a model of couples and singles’ savings and labor supply under two types of wage processes. The first wage process is the canonical—age independent, linear—one that is typically used to evaluate government insurance provision. The second wage process is a flexible one. We use our model to evaluate the optimal mix of the two most common types of means-tested benefits—in-work versus income floor. The canonical wage process underestimates wage persistence for women and thus implies that in-work benefits should account for most benefit income. In contrast, the richer wage process that matches the wage data well, implies that the income floor should be the main benefit source, similarly to the system in place in the UK. This stresses that allowing for rich wage dynamics is important to properly evaluate policy.
Keywords: Wage Risk; Government Insurance; Spousal Insurance; Household Welfare
JEL Codes: D1; D12; D14; D15; H11; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage risk (J31) | household self-insurance capabilities (G52) |
| family structure (J12) | household self-insurance capabilities (G52) |
| wage processes (J33) | optimal benefit configurations (L21) |
| wage dynamics (J31) | optimal welfare benefits (D69) |
| wage dynamics (J31) | welfare policy outcomes (I38) |
| family structure (J12) | wage dynamics (J31) |
| Universal Credit transition (J65) | welfare effects for single men (D69) |