In this paper we examine the link between wage inequality and consumption inequality using a life cycle model that incorporates household consumption and family labor supply decisions. We derive analytical expressions based on approximations for the dynamics of consumption, hours, and earnings...

We develop a life cycle framework with two individuals within the family (husband and wife) making decisions about household consumption and their individual labor supply, subject to uncertainty about offered market wages. The response of consumption to permanent wage shocks depends on two...

This paper describes the transmission of income inequality into consumption inequality and in so doing investigates the degree of insurance to income shocks. It combines panel data on income from the PSID with consumption data from repeated CEX cross-sections and distinguishes between permanent...