Financial Wealth, Consumption Smoothing, and Income Shocks due to Job Loss
AbstractOne of the reasons for setting up an unemployment insurance scheme is to allow job losers to smooth consumption. However, very little is known to date on the consumption smoothing impact of unemployment benefits. Here, we test for the impact of unemployment benefits on changes in household food expenditure of individuals that have recently experienced a job loss, allowing for different levels of household’s financial wealth. We also study the relationship between unemployment benefits and financial wealth of the unemployed. We use for the empirical analysis a unique dataset rich on information on financial assets and debt of the unemployed. We conclude that there is significant heterogeneity in the consumption responses of job losers to the income shock. For households without financial wealth at the time of job loss, unemployment benefits help smoothing food consumption. The results of estimation also suggest considerable heterogeneity in the relationship between borrowing and the level of benefits. For households running debt before job loss, there is evidence that higher replacement rates lead to postponing of paying off debt.
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Bibliographic InfoPaper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2003-09.
Date of creation: 2003
Date of revision:
Unemployment; Savings. JEL Classification: J64; E21.;
Other versions of this item:
- Bloemen, Hans G. & Stancanelli, Elena G.F., 2001. "Financial wealth, consumption smoothing, and income shocks due to job loss," Serie Research Memoranda 0036, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-01 (All new papers)
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