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Does job insecurity affect household consumption?

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Author Info
Andrew Benito

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Abstract

This paper confronts implications of precautionary saving models with micro-data on British households. The results provide support for the central proposition that unemployment risk leads households to defer consumption. A one standard deviation increase in unemployment risk for the head of household is estimated to reduce household consumption by 1.6%. Taking the spread of the distribution of job insecurity to consist of four standard deviations, this indicates that moving from the bottom to the top of the distribution of job insecurity implies a reduction in consumption of 6.4%. This effect is still greater for the young, those without non-labour income and manual workers--for whom precautionary effects might be expected to be stronger a priori. A further job insecurity effect from the head of household's partner is estimated. Euler equation estimates further support this conclusion. Consumer durables purchases are also examined and found to be deferred by greater unemployment risk. Copyright 2006, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 58 (2006)
Issue (Month): 1 (January)
Pages: 157-181
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Handle: RePEc:oup:oxecpp:v:58:y:2006:i:1:p:157-181

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew Benito & Haroon Mumtaz, . "Consumption excess sensitivity, liquidity constraints and the collateral role of housing," Bank of England working papers 306, Bank of England. [Downloadable!]
  2. Björn Fischer & Petra Köhler & Franz Seitz, 2004. "The demand for euro area currencies," Working Paper Series 330, European Central Bank. [Downloadable!]
  3. Clemente De Lucia & Mara Meacci, 2005. "Does job security matter for consumption? An analysis on Italian microdata," ISAE Working Papers 54, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  4. Francis Green, 2008. "Subjective Employment Insecurity Around the World," Studies in Economics 0810, Department of Economics, University of Kent. [Downloadable!]
  5. Andrew Benito, . "Housing equity as a buffer: evidence from UK households," Bank of England working papers 324, Bank of England. [Downloadable!]
  6. Andrew Benito, . "How does the down-payment constraint affect the UK housing market?," Bank of England working papers 294, Bank of England. [Downloadable!]
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