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Saving and Portfolio Allocation Before and After Job Loss

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Abstract

Using administrative panel data from Norway, we investigate the development of household labor income, financial wealth and asset holdings over a nine-year period surrounding job loss. Consistent with a simple theoretical model, the data show precautionary saving and a shift toward safer assets in the years leading up to unemployment, and depletion of savings during unemployment. This suggests that at least some households can foresee and prepare for upcoming unemployment, which indicates that private savings can to some extent serve as a substitute for publicly provided unemployment insurance.

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File URL: http://www.kof.ethz.ch/publications/science/pdf/wp_298.pdf
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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 12-298.

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Length: 48 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:kof:wpskof:12-298

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Keywords: unemployment; precautionary saving; consumption smoothing; household portfolios; portfolio allocation; optimal unemployment insurance;

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References

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  1. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(3), pages 23-45, Summer.
  2. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," NBER Working Papers 15181, National Bureau of Economic Research, Inc.
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  5. Thomas F. Crossley & Hamish W. Low, 2005. "Borrowing Constraints, the Cost of Precautionary Saving, and Unemployment Insurance," Social and Economic Dimensions of an Aging Population Research Papers, McMaster University 125, McMaster University.
  6. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1221-48, September.
  7. Knut R¯ed & Oddbj¯rn Raaum, 2003. "Administrative registers - Unexplored reservoirs of Scientific Knowledge?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(488), pages F258-F281, 06.
  8. Kristiina Huttunen & Jarle Møen & Kjell G. Salvanes, 2011. "How Destructive Is Creative Destruction? Effects Of Job Loss On Job Mobility, Withdrawal And Income," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(5), pages 840-870, October.
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  10. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 379-402, December.
  11. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(484), pages 190-206, January.
  12. Christopher D Carroll & Karen E Dynan & Spencer D Krane, 1999. "Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 416, The Johns Hopkins University,Department of Economics.
  13. Hans G. Bloemen & Elena G. F. Stancanelli, 2005. "Financial Wealth, Consumption Smoothing and Income Shocks Arising from Job Loss," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 72(3), pages 431-452, 08.
  14. Martin Browning & Thomas Crossley, 1996. "Unemployment Insurance Benefit Levels and Consumption Changes," Discussion Papers 96-11, University of Copenhagen. Department of Economics.
  15. Raj Chetty, 2005. "A General Formula for the Optimal Level of Social Insurance," NBER Working Papers 11386, National Bureau of Economic Research, Inc.
  16. Luigi Guiso & Charles Gottlieb & Andreas Fagereng, 2012. "Asset Market Participation and Portfolio Choice over the Life-Cycle," 2012 Meeting Papers, Society for Economic Dynamics 783, Society for Economic Dynamics.
  17. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-On-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(4), pages 1511-1560, November.
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  19. Melvin Stephens, 2004. "Job Loss Expectations, Realizations, and Household Consumption Behavior," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 253-269, February.
  20. Nicola Fuchs-Schündeln & Matthias Schündeln, 2005. "Precautionary Savings and Self-Selection: Evidence from the German Reunification "Experiment"," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(3), pages 1085-1120, August.
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Cited by:
  1. Marcus Klemm, 2012. "Job Security Perceptions and the Saving Behavior of German Households," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0380, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Christoph Basten & Andreas Fagereng & Kjetil Telle, 2014. "Cash‐on‐hand and the Duration of Job Search: Quasi‐experimental Evidence from Norway," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 0(576), pages 540-568, 05.
  3. Zaman, Rubaiya & Carannate, Maria & Ferra, Emi, 2013. "Effects of Uncertainty on Household Saving Rate," MPRA Paper 51208, University Library of Munich, Germany.

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