This paper studies the paths from inequality in earnings to inequality in household consumption. We show that careful study of the evolution of the variances and covariances of earnings and consumption within cohorts across time can identify permanent and transitory shocks. We present an application to the evolution of inequality in the United Kingdom. We extend previous results to recognise separate earnings of partners in couples.The path from inequality in hourly wages to inequality in household consumption and ultimately welfare is mediated by numerous household decisions. Consumption changes are in¯uenced by labour supply choices and by the availability of saving and transfers to buffer temporary and unexpected shocks and by the existence of formal or informal insurance arrangements. This paper argues that the simultaneous analysis of earnings and consumption data can add key insights to our understanding of the evolution of inequality. In particular, the simultaneous analysis of consumption and earning inequality can be helpful in: (i) decomposing shocks to earnings and wages into transitory and permanent components; (ii) determining which shocks individual households are able to smooth out and which they are not; (iii) differentiating responses to various components of earnings ± in particular, the effect of shocks to primary earners and spouse.The large increase in wage inequality during the 1980s and early 1990s (documented, for instance, by Katz and Murphy

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