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Wage Shocks and Consumption Variability in Mexico during the 1990s

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  • Attanasio, Orazio P.
  • Székely, Miguel

Abstract

This paper presents evidence on the relationship between economic shocks to relative male wages and changes in household consumption in Mexico during the 1990s, which is a period characterized by high volatility. In addition to performing this type of analysis for Mexico for the first time, the paper makes two main contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: non-durable goods, durable goods, education and health. Our results for non-durable goods consumption reject the hypothesis that Mexican households are able to insure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represent longer-run investment in human capital, which makes them more vulnerable in the future.

Suggested Citation

  • Attanasio, Orazio P. & Székely, Miguel, 2001. "Wage Shocks and Consumption Variability in Mexico during the 1990s," IDB Publications (Working Papers) 3291, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:3291
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    References listed on IDEAS

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    1. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
    2. Woden, Q.T. & Ayres, W. & Barenstein, M. & Hicks, N. & Lee, K. & Maloney, W. & Peeters, P. & Siaens, C. & Yitzjaki, S., 2000. "Poverty and Policy in Latin America and Caribeean," Papers 467, World Bank - Technical Papers.
    3. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    4. Martin Browning & Thomas Crossley, "undated". "Shocks, stocks and socks: consumption smoothing and the replacement of durables during an unemployment spell," Canadian International Labour Network Working Papers 27, McMaster University.
    5. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "What's Wrong with International Financial Markets?," Research Department Publications 4225, Inter-American Development Bank, Research Department.
    6. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 603-640.
    7. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    8. Orazio Attanasio & Berloffa, Berloffa & Richard Blundell & Stephen Redding, 2002. "From wages to consumption inequality: tracking shocks," IFS Working Papers W02/20, Institute for Fiscal Studies.
    9. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-467, June.
    10. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "What's Wrong with International Financial Markets?," Research Department Publications 4225, Inter-American Development Bank, Research Department.
    11. repec:idb:wpaper:429 is not listed on IDEAS
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    Cited by:

    1. Skoufias, Emmanual & Parker, Susan W., 2002. "Labor market shocks and their impacts on work and schooling," FCND discussion papers 129, International Food Policy Research Institute (IFPRI).

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