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Living with Reduced Income: An Analysis of Household Financial Vulnerability Under COVID-19

Author

Listed:
  • Catarina Midões

    (Ca’ Foscari University of Venice
    Bruegel)

  • Mateo Seré

    (University of Antwerp
    Pompeu Fabra University)

Abstract

The COVID-19 crisis has led to substantial reductions in earnings. We propose a new measure of financial vulnerability, computable through survey data, to determine whether households can withstand a certain income shock for a defined period of time. Using data from the ECB Household Finance and Consumption Survey (HFCS) we analyse financial vulnerability in seven EU countries. We find that, out of the 243 million individuals considered, 47 million are vulnerable to a three month long income shock (the average length of the first wave COVID-19 lockdown), i.e., they cannot afford food and housing expenses for three months without privately earned income. Differences across countries are stark. Individuals born outside the EU are especially likely to be vulnerable. Being younger, a single parent, and a woman are also statistically significant risk factors. Through a tax-benefit microsimulation exercise, we look into the COVID-19 employment protection benefits, the largest income support measure in the countries considered. Considering as our sample individuals in households where someone receives a salary, we derive household net income when employees are laid-off and awarded the COVID-19 employment protection benefits enacted. Our findings suggest that the employment protection schemes are extremely effective in reducing the number of vulnerable individuals. The relative importance of rent and mortgage suspensions, (likewise, widespread COVID-19 policies), in alleviating vulnerability, is highly country dependent.

Suggested Citation

  • Catarina Midões & Mateo Seré, 2022. "Living with Reduced Income: An Analysis of Household Financial Vulnerability Under COVID-19," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 161(1), pages 125-149, May.
    • Handle: RePEc:spr:soinre:v:161:y:2022:i:1:d:10.1007_s11205-021-02811-7
    DOI: 10.1007/s11205-021-02811-7
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    1. Alisa C. Lewin & Michal Shamai & Sharon Novikov, 2023. "Surviving in Crisis Mode: The Effect of Material Hardship and Social Support on Emotional Wellbeing Among People in Poverty During COVID-19," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 165(1), pages 245-265, January.

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