IDEAS home Printed from https://ideas.repec.org/a/spr/soinre/v161y2022i1d10.1007_s11205-021-02811-7.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11205-021-02811-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11205-021-02811-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Grégory Claeys & Zsolt Darvas & Maria Demertzis & Guntram B. Wolff, 2021. "The great COVID-19 divergence- managing a sustainable and equitable recovery in the European Union," Policy Contributions 42740, Bruegel.
    2. Adams-Prassl, Abi & Boneva, Teodora & Golin, Marta & Rauh, Christopher, 2020. "Inequality in the impact of the coronavirus shock: Evidence from real time surveys," Journal of Public Economics, Elsevier, vol. 189(C).
    3. J. Michael Collins, 2015. "Paying for the Unexpected: Making the Case for a New Generation of Strategies to Boost Emergency Savings, Affording Contingencies, and Liquid Resources for Low-Income Families," Palgrave Macmillan Books, in: J. Michael Collins (ed.), A Fragile Balance, chapter 0, pages 1-15, Palgrave Macmillan.
    4. Hamermesh, Daniel S, 1982. "Minimum Wages and the Demand for Labor," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 365-380, July.
    5. Suphanit Piyapromdee & Peter Spittal, 2020. "The Income and Consumption Effects of COVID‐19 and the Role of Public Policy," Fiscal Studies, John Wiley & Sons, vol. 41(4), pages 805-827, December.
    6. Naik, Narayan Y & Moore, Michael J, 1996. "Habit Formation and Intertemporal Substitution in Individual Food Consumption," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 321-328, May.
    7. Abi Adams-Prassl & Teodora Boneva & Marta Golin & Christopher Rauh, 2020. "The Impact of the Coronavirus Lockdown on Mental Health: Evidence from the US," Working Papers 2020-030, Human Capital and Economic Opportunity Working Group.
    8. Isabel Günther & Johannes K. Maier, 2014. "Poverty, Vulnerability, and Reference-Dependent Utility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 155-181, March.
    9. Mark Dynarski & Steven M. Sheffrin, 1987. "Consumption and Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 411-428.
    10. Asger Lau Andersen & Emil Toft Hansen & Niels Johannesen & Adam Sheridan, 2022. "Consumer responses to the COVID‐19 crisis: evidence from bank account transaction data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(4), pages 905-929, October.
    11. Cristiano Codagnone & Francesco Bogliacino & Camilo Gómez & Rafael Charris & Felipe Montealegre & Giovanni Liva & Francisco Lupiáñez-Villanueva & Frans Folkvord & Giuseppe A Veltri, 2020. "Assessing concerns for the economic consequence of the COVID-19 response and mental health problems associated with economic vulnerability and negative economic shock in Italy, Spain, and the United K," PLOS ONE, Public Library of Science, vol. 15(10), pages 1-16, October.
    12. Grégory Claeys & Zsolt Darvas & Maria Demertzis & Guntram B. Wolff, 2021. "The Great COVID-19 Divergence: Managing a Sustainable and Equitable Recovery in the EU," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(4), pages 211-219, July.
    13. Melvin Stephens, 2001. "The Long-Run Consumption Effects Of Earnings Shocks," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 28-36, February.
    14. Raj Chetty & Adam Szeidl, 2007. "Consumption Commitments and Risk Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 831-877.
    15. Sarah Kuypers & Francesco Figari & Gerlinde Verbist, 2016. "The Eurosystem Household Finance and Consumption Survey: A New Underlying Database for EUROMOD," International Journal of Microsimulation, International Microsimulation Association, vol. 9(3), pages 35-65.
    16. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
    17. Sutherland, Holly, 2001. "EUROMOD: an integrated European benefit-tax model: final report," EUROMOD Working Papers EM9/01, EUROMOD at the Institute for Social and Economic Research.
    18. Esselink, Henk & Gijsel, Lola Hernandez-van, 2017. "The use of cash by households in the euro area," Occasional Paper Series 201, European Central Bank.
    19. Martin Browning & Thomas F. Crossley, 2009. "Shocks, Stocks, and Socks: Smoothing Consumption Over a Temporary Income Loss," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1169-1192, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Catarina Midões & Mateo Seré, 2020. "Living with reduced income: an analysis of household financial vulnerability under COVID-19," Working Papers 2008, Herman Deleeck Centre for Social Policy, University of Antwerp.
    2. Midões, Catarina & Seré, Mateo, 2020. "Living with Reduced Income: an Analysis of Household Financial Vulnerability Under COVID-19," EUROMOD Working Papers EM21/20, EUROMOD at the Institute for Social and Economic Research.
    3. Hodbod, Alexander & Hommes, Cars & Huber, Stefanie J. & Salle, Isabelle, 2021. "The COVID-19 consumption game-changer: Evidence from a large-scale multi-country survey," European Economic Review, Elsevier, vol. 140(C).
    4. Stefanie Stantcheva, 2022. "Inequalities in the times of a pandemic," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(109), pages 5-41.
    5. Jung, Haeil & Kim, Jun Hyung & Hong, Gihyeon, 2023. "Impacts of the COVID-19 crisis on single-person households in South Korea," Journal of Asian Economics, Elsevier, vol. 84(C).
    6. Baker, Scott R. & Johnson, Stephanie & Kueng, Lorenz, 2024. "Financial returns to household inventory management," Journal of Financial Economics, Elsevier, vol. 151(C).
    7. Bruno P. Carvalho & Susana Peralta & João Pereira dos Santos, 2022. "Regional and sectorial impacts of the Covid‐19 crisis: Evidence from electronic payments," Journal of Regional Science, Wiley Blackwell, vol. 62(3), pages 757-798, June.
    8. Irene Y. H. Ng & Zhi Han Tan & Vincent Chua & Annie Cheong, 2022. "Separate Lives, Uncertain Futures: Does Covid-19 Align or Differentiate the Lives of Low- and Higher-Wage Young Workers?," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 17(6), pages 3349-3380, December.
    9. Abi Adams‐Prassl & Teodora Boneva & Marta Golin & Christopher Rauh, 2020. "Furloughing," Fiscal Studies, John Wiley & Sons, vol. 41(3), pages 591-622, September.
    10. Jim Been & Eduard Suari‐Andreu & Marike Knoef & Rob Alessie, 2024. "Consumption and time use responses to unemployment: Implications for the lifecycle model," Economica, London School of Economics and Political Science, vol. 91(361), pages 1-32, January.
    11. Gelman, Michael & Kariv, Shachar & Shapiro, Matthew D. & Silverman, Dan & Tadelis, Steven, 2020. "How individuals respond to a liquidity shock: Evidence from the 2013 government shutdown," Journal of Public Economics, Elsevier, vol. 189(C).
    12. Liang, Xiao & Rozelle, Scott & Yi, Hongmei, 2022. "The impact of COVID-19 on employment and income of vocational graduates in China: Evidence from surveys in January and July 2020," China Economic Review, Elsevier, vol. 75(C).
    13. Barbara Baarsma & Jesse Groenewegen, 2021. "COVID-19 and the Demand for Online Grocery Shopping: Empirical Evidence from the Netherlands," De Economist, Springer, vol. 169(4), pages 407-421, November.
    14. Alegre, Joaquín & Mateo, Sara & Pou, Llorenç, 2013. "Tourism participation and expenditure by Spanish households: The effects of the economic crisis and unemployment," Tourism Management, Elsevier, vol. 39(C), pages 37-49.
    15. Campos, Rodolfo G. & Reggio, Iliana, 2016. "Optimal unemployment insurance: Consumption versus expenditure," Labour Economics, Elsevier, vol. 38(C), pages 81-89.
    16. Dora Gicheva & Justine Hastings & Sofia Villas-Boas, 2007. "Revisiting the Income Effect: Gasoline Prices and Grocery Purchases," NBER Working Papers 13614, National Bureau of Economic Research, Inc.
    17. Sonia OREFICCE & Climent Quintana-Domeque, 2021. "Gender inequality in COVID-19 times: evidence from UK prolific participants," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 87(2), pages 261-287, June.
    18. Nicholas W. Papageorge & Matthew V. Zahn & Michèle Belot & Eline Broek-Altenburg & Syngjoo Choi & Julian C. Jamison & Egon Tripodi, 2021. "Socio-demographic factors associated with self-protecting behavior during the Covid-19 pandemic," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(2), pages 691-738, April.
    19. Olive Umuhire Nsababera & Vibhuti Mendiratta & Hannah Sam, 2023. "The Impact of COVID-19 on Household Welfare in the Comoros: The Experience of a Small Island Developing State," Global Perspectives on Wealth and Distribution, in: Shirley Johnson-Lans (ed.), The Coronavirus Pandemic and Inequality, chapter 0, pages 141-195, Palgrave Macmillan.
    20. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 9, pages 773-854, Elsevier.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:soinre:v:161:y:2022:i:1:d:10.1007_s11205-021-02811-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.