Full Citation

Title: Income Shock and Investment in Human Capital

Citation Type: Miscellaneous

Publication Year: 2010

ISBN:

ISSN:

DOI:

NSFID:

PMCID:

PMID:

Abstract: How well can parents insure their children's future? This paper aims at answering this question by studying the link between income shocks and parental investments in children in terms of time and goods. The paper presents three main contributions: (1) it estimates the degree of response to income shocks in families with young children, without imposing an a priori insurance setup; (2) it analyzes empirically the mechanism behind the degree of insurance found, in particular, the role of wealth and public transfers, and heterogeneity in responses to shocks by education and family structure; (3) finally, it proposes a useful way to use common information in the NLSY79 and the Consumer Expenditure Survey (CEX) and the American Time Use Survey (ATUS) to combine these three data sets and construct a panel of income, expenditures and time use.I use local business cycles as exogenous variation to families' resources. These are an unpredictable component of county unemployment rate, which I obtain after removing year and county eff ects from the time-series of county unemployment rate.I fi nd that (1) families only partially insure against income shocks, but expenditures in education of children respond less to shocks than household consumption, as parents try to shield them against shocks because investments may be complements across children's life-cycle; (2) income elasticity of investmentsin terms of time is larger in families with young children than in families where there are only school-agechildren, because at early ages there is a larger substitutability between diff erent uses of time; and (3)better o families use savings to bu er against shocks whereas poor families resort on public transfers.

User Submitted?: No

Authors: Ginja, Rita

Publisher: University College London

Data Collections: IPUMS Time Use - ATUS

Topics: Labor Force and Occupational Structure, Other

Countries: