Earnings instability and child protection: Evidence from state administrative data

Given previous inconclusive results on unemployment and involvement with the child welfare system (CPS) and the growing attention on precarious labor market conditions, this article relies on administrative data on wage and social benefits from the state of Wisconsin to investigate the relationship between employment instability and subsequent child maltreatment investigations. Using an event history approach, this study analyzes earnings instability—measured by one-time wage shocks, cumulative wage shocks, and stable earnings duration—on child maltreatment risk. It also pays attention to the role of safety net programs on buffering the risk of adverse wage shocks on child welfare involvement. I find that experiencing a negative earnings shock of 30% or more increases the likelihood of CPS involvement by approximately 18%. The effect diminishes and becomes nonsignificant when an earnings decline is compensated by benefit receipt. Each additional earnings drop is associated with a 15% greater likelihood of CPS involvement. Each consecutive quarter with stable income is associated with 5% lower probability of a CPS report. The results are more pronounced for abuse than neglect and are marginally significant for neglect reports. The findings suggest that accessing sufficient social benefits as supplemental income when negative earnings shocks occur serves to effectively buffer against the risk of child maltreatment, particularly among families with young children. This study confirms income support as an important instrument to reduce child maltreatment risk; it indicates that policies aimed at boosting income and stabilizing low-income family economics could substantially increase children’s safety and well-being.

Consumption Insurance against Wage Risk: Family Labor Supply and Optimal Progressive Income Taxation

We show that a calibrated life cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri, and Saporta-Eksten (2016) in US data. In the model, 35 percent of male and 18 percent of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 32 percent and 19 percent. Most of the consumption insurance against permanent male wage shocks is provided through the presence and labor supply response of the female earner. Abstracting from this private intrahousehold income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the optimal degree of tax progressivity is significantly lower and the welfare gains from implementing the optimal system are cut roughly in half. (JEL D15, H21, H24, J16, J22, J31)

Consumption Inequality and Family Labor Supply

We examine the link between wage and consumption inequality using a life-cycle model incorporating consumption and family labor supply decisions. We derive analytical expressions for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, nonseparability, progressive taxation, and asset accumulation. The model is estimated using panel data for hours, earnings, assets, and consumption. We focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks. Once family labor supply, assets, and taxes are properly accounted for there is little evidence of additional insurance. (JEL D12, D14, D91, J22, J31)

Consumption and Labor Supply with Partial Insurance: An Analytical Framework

We develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing. Closed-form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption, hours, and wages. We prove identification and demonstrate how labor supply data are informative about risk sharing. The model, estimated with US data over the period 1967–2006, implies that (i) 39 percent of permanent wage shocks pass through to consumption; (ii ) the share of wage risk insured increased until the early 1980s; and (iii) preference heterogeneity is important in accounting for observed dispersion in consumption and hours. (JEL E21, E23, E31, E52)