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Oxford Economic Papers Advance Access published online on July 13, 2007
Oxford Economic Papers, doi:10.1093/oep/gpm007
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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}

*Research Centre for Education and the Labor Market (ROA), Faculty of Economics and Business Administration, Maastricht University, Netherlands; e-mail: a.degrip{at}roa.unimaas.nl
{dagger}Department of Health Care Studies, Section Medical Sociology, Faculty of Health Sciences, Maastricht University, Netherlands
{ddagger}Department of Psychiatry and Neuropsychology, European Graduate School of Neuroscience (EURON), Brain and Behavior Institute, Faculty of Medicine, Maastricht University, Netherlands


  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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