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The response of household wealth to the risk of losing the job: evidence from differences in firing costs

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  • Cristina Barceló

    ()
    (Banco de España)

  • Ernesto Villanueva

    ()
    (Banco de España)

Abstract

Economic theory predicts that individuals exposed to the risk of losing their job postpone their consumption and accumulate more assets to build a buffer stock of saving. We provide a new test of the hypothesis using substantial variation in severance payments across contracts in the Spanish labor market. Using the 2002 and 2005 waves of a new survey of wealth and consumption we estimate the link between the probability that several household members lose their job and the wealth and consumption of that household. We instrument the type of contract using regional variation in the amount, timing and target groups of subsidies given to fi rms to hire workers using high severance payment ones. We find that workers covered by fixed-term contracts accumulate more financial wealth. An increase in the probability of losing the job of 8 percentage points increases average financial wealth by 4 months of income. We provide simulations from a simple buffer stock and a permanent income models that suggest that our results are more likely to be generated by the former.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/10/Fic/dt1002e.pdf
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1002.

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Length: 58 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:bde:wpaper:1002

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Keywords: precautionary savings; household wealth and consumption; labor firing costs;

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References

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Cited by:
  1. Daniel Fernández-Kranz & Núria Rodríguez-Planas, 2010. "The Part-Time Pay Penalty in a Segmented Labor Market," Working Papers 458, Barcelona Graduate School of Economics.
  2. Fernández-Kranz, Daniel & Lacuesta, Aitor & Rodríguez-Planas, Núria, 2010. "Chutes and Ladders: Dual Tracks and the Motherhood Dip," IZA Discussion Papers 5403, Institute for the Study of Labor (IZA).
  3. José Ignacio Conde Ruiz & Florentino Felgueroso & Jose Ignacio García Pérez, 2011. "Reforma Laboral 2010: Una primera evaluación y propuestas de mejora," Economic Reports 01-2011, FEDEA.
  4. Olga Kuzmina, 2013. "Operating Flexibility and Capital Structure: Evidence from a Natural Experiment," Working Papers w0197, Center for Economic and Financial Research (CEFIR).
  5. Andrea Brandolini & Silvia Magri & Timothy M. Smeeding, 2010. "Asset-based measurement of poverty," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 267-284.
  6. Christoph Basten & Andreas Fagereng & Kjetil Telle, 2012. "Saving and portfolio allocation before and after job loss," Discussion Papers 672, Research Department of Statistics Norway.
  7. Laura Bartiloro & Cristiana Rampazzi, 2013. "Italian households’ saving and wealth during the crisis," Questioni di Economia e Finanza (Occasional Papers) 148, Bank of Italy, Economic Research and International Relations Area.

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