Choice of leisure and goods consumption over the life cycle Life Cycle Model Choice of leisure and goods consumption over the life cycle

B. Bosworth, G. Burtless and C B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution of Retirement Income” August 2001

Male Labor force Participation Rates by Age 1948 2003 F.D. Blau, M.A. Ferber and A.E. Winkler, The Economics of Women, Men and Work 5th ed. Upper Saddle River, NJ: Pearson Prentice Hall.2006

B. Bosworth, G. Burtless and C B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution of Retirement Income” August 2001

Female Labor force Participation Rates by Age 2003 1980 1960 1940 F.D. Blau, M.A. Ferber and A.E. Winkler, The Economics of Women, Men and Work 5th ed. Upper Saddle River, NJ: Pearson Prentice Hall.2006

Lt wt Ht

Life Cycle Model (No discounting) Annual consumption of goods and leisure Annual time budget Lifetime income Annual goods consumption

Income and Substitution effects Do fully anticipated wage increases have income effects? Substitution effects? Do unanticipated wage increases have income effects? Substitution effects? Transitory versus permanent wage shocks

Life expectancy at birth by gender, 1900—1990 How does rising life expectancy affect lifetime income? Leisure consumption? Source: Robert Wood Johnson Foundation, 1996. Chronic Care in America: A 21st Century Challenge.

Earnings expectations: early information is not perfect B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution of Retirement Income” August 2001

Earnings expectations: early information is not perfect B. Bosworth, G. Burtless and C. Sahn “The Trend in Lifetime Earnings Inequality and Its Impact on the Distribution of Retirement Income” August 2001