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


  • Cristina Barceló

    () (Banco de España)

  • Ernesto Villanueva

    () (Banco de España)


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.

Suggested Citation

  • Cristina Barceló & Ernesto Villanueva, 2010. "The response of household wealth to the risk of losing the job: evidence from differences in firing costs," Working Papers 1002, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1002

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    References listed on IDEAS

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    Cited by:

    1. Fernández-Kranz, Daniel & Rodríguez-Planas, Núria, 2011. "The part-time pay penalty in a segmented labor market," Labour Economics, Elsevier, vol. 18(5), pages 591-606, October.
    2. J. Ignacio Conde-Ruiz & Florentino Felgueroso & J. Ignacio García-Pérez, 2011. "Reforma Laboral 2010: Una Primera Evaluación Y Propuestas De Mejora," Revista de Economia Aplicada, Universidad de Zaragoza, Departamento de Estructura Economica y Economia Publica, vol. 19(3), pages 147-180, Winter.
    3. 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.
    4. Christoph Basten & Andreas Fagereng & Kjetil Telle, 2016. "Saving and Portfolio Allocation Before and After Job Loss," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 293-324, March.
    5. Paul, Marie & Fernandez-Kranz, Daniel & Rodriguez-Planas, Nuria, 2014. "The Wage Effects of Fixed-term Contract Employment Revisited: an Investigation Based on Social Security Records," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100324, Verein für Socialpolitik / German Economic Association.
    6. Barceló, Cristina & Villanueva, Ernesto, 2016. "The response of household wealth to the risk of job loss: Evidence from differences in severance payments," Labour Economics, Elsevier, vol. 39(C), pages 35-54.
    7. Luz Karime Abadía Alvarado, 2014. "The effects of fixed-term contracts on workers in Colombia," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, August.
    8. Olga Kuzmina, 2013. "Operating Flexibility and Capital Structure: Evidence from a Natural Experiment," Working Papers w0197, Center for Economic and Financial Research (CEFIR).
    9. Juha Honkkila & Ilja Kristian Kavonius, 2016. "Deriving household indebtedness indicators by linking micro and macro balance sheet data," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Combining micro and macro data for financial stability analysis, volume 41 Bank for International Settlements.
    10. 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).
    11. 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.
    12. Campos, Rodolfo G. & Reggio, Iliana, 2015. "Consumption in the shadow of unemployment," European Economic Review, Elsevier, vol. 78(C), pages 39-54.
    13. repec:pab:rmcpee:v:24:y:2018:i:1:p:292-339 is not listed on IDEAS

    More about this item


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

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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