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Wage Shocks and Consumption Variability in Mexico during the 1990s

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  • Miguel Székely
  • Orazio P. Attanasio

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

  • Miguel Székely & Orazio P. Attanasio, 2001. "Wage Shocks and Consumption Variability in Mexico during the 1990s," Research Department Publications 4265, Inter-American Development Bank, Research Department.
    • Handle: RePEc:idb:wpaper:4265
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    2. Ndubuisi Obeka Chukwu & Jude Okechukwu Chukwu, 2023. "Drivers of Households’ off-the-farm Income Diversification Patterns in Nigeria: Panel Evidence Using General Household Survey Data," Review of Development and Change, , vol. 28(1), pages 67-89, June.
    3. Kazianga, Harounan & Udry, Christopher, 2006. "Consumption smoothing? Livestock, insurance and drought in rural Burkina Faso," Journal of Development Economics, Elsevier, vol. 79(2), pages 413-446, April.
    4. Jaime Lara, 2016. "Remittances as an Insurance Mechanism in the Labor Market," Journal of Labor Research, Springer, vol. 37(3), pages 368-387, September.
    5. 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).
    6. Cortes, Darwin & Gallegos, Andrés & Perez Perez, Jorge, 2021. "The Spending Responses to Adverse Health Shocks: Evidence from a Panel of Colombian Households," SocArXiv vh2qa, Center for Open Science.
    7. Madeira, Carlos, 2023. "The evolution of consumption inequality and risk-insurance in Chile," Emerging Markets Review, Elsevier, vol. 54(C).
    8. Danzer, Alexander M., 2011. "Labor Supply and Consumption Smoothing When Income Shocks Are Non-Insurable," IZA Discussion Papers 5499, Institute of Labor Economics (IZA).
    9. Cabral, René & Mollick, André Varella, 2017. "Mexican real wages and the U.S. economy," Economic Modelling, Elsevier, vol. 64(C), pages 141-152.
    10. TAMURA Sakuya & SAWADA Yasuyuki, 2009. "Consumption Insurance against Unforeseen Epidemics:The Case of Avian Influenza in Vietnam," Discussion papers 09023, Research Institute of Economy, Trade and Industry (RIETI).
    11. Sung Jin Kang & Yasuyuki Sawada, 2008. "Credit Crunch And Household Welfare, The Case Of The Korean Financial Crisis," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 438-458, December.
    12. Gabriela Cugat, 2019. "Emerging markets, household heterogeneity, and exchange rate policy," 2019 Meeting Papers 526, Society for Economic Dynamics.
    13. Gamel Abdul-Nasser Salifu, 2019. "The Political Economy Dynamics of Rural Household Income Diversification: A Review of the International Literature," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 273-290, December.
    14. Chiara Binelli, 2008. "Returns to Education and Increasing Wage Inequality in Latin America," Working Paper series 30_08, Rimini Centre for Economic Analysis.
    15. Bruhn, Miriam & Lara Ibarra, Gabriel & McKenzie, David, 2013. "Why is voluntary financial education so unpopular ? Experimental evidence from Mexico," Policy Research Working Paper Series 6439, The World Bank.

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