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Oxford Economic Papers Advance Access originally published online on July 13, 2007
Oxford Economic Papers 2007 59(4):606-640; doi:10.1093/oep/gpm007
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Right arrow D91 - Intertemporal Consumer Choice; Life Cycle [...]
Right arrow E21 - Consumption; Saving
Right arrow N31 - U.S.; Canada: Pre-1913
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© Oxford University Press 2007 All rights reserved

Consumption smoothing among working-class American families before social insurance

John A. James*, Michael G. Palumbo{dagger}, and Mark Thomas{ddagger}

*Department of Economics, University of Virginia
{dagger}Board of Governors of the Federal Reserve System
{ddagger}Department of History, University of Virginia, PO Box 400180—Randall Hall, Charlottesville, VA 22904, USA; e-mail: mt4w{at}virginia.edu


  Abstract

This paper examines the saving decisions of a large sample of turn-of-the-century working-class American families. We decompose each family's reported income into permanent and transitory components and then estimate marginal propensities to save from each component. Marginal propensities to save out of transitory income are large relative to the propensities based on permanent income, though the former lie much below one and the latter much above zero, remarkably similar to results based on contemporary data sets. Smoothing appears to have been primarily at medium rather than low frequencies, more consistent with precautionary than with life-cycle motives.

Key Words: JEL classifications: D91 • E21 • N31


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