IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp9572.html
   My bibliography  Save this paper

Unemployment Risk and Over-Indebtedness: A Micro-Econometric Perspective

Author

Listed:
  • Du Caju, Philip

    () (National Bank of Belgium)

  • Rycx, Francois

    () (Free University of Brussels)

  • Tojerow, Ilan

    () (Free University of Brussels)

Abstract

We study how unemployment effects the over-indebtedness of households using the new European Household Finance and Consumption Survey (HFCS). First, we assess the role of different labor market statuses (i.e. employed, unemployed, disabled, retired, etc.) and other household characteristics (i.e. demographics, housing status, household wealth and income, etc.) to determine the likelihood of over-indebtedness. We explore these relationships both at the Euro area level and through country-specific regressions. This approach captures country-specific institutional effects concerning all the different factors which can explain household indebtedness in its most severe form. We also examine the role that each country's legal and economic institutions play in explaining these differences. The results of the regressions across all countries show that the odds of being over-indebted are much higher in households where the reference person is unemployed. These odds ratios remain fairly stable across different over-indebtedness indicators and specifications. Interestingly, we find similar results for secured debt only. Turning to country specific results, the role of unemployment varies widely across countries. In Spain, France or Portugal, for example, the odds ratio for the unemployed group is just below 2, whereas in Austria, Belgium, or Italy the odds ratio is higher than 4. Secondly, we situate the analysis in a macro-micro frame to identify households and countries that are especially vulnerable to adverse macroeconomic shocks in the labor market. For the Euro area, we find that the percentage of households plagued by over-indebtedness increased by more than 10%, suggesting that another unemployment shock could have a major impact on the financial solvency of Euro area households. Finally, the impact of this shock on single-headed households is much higher than on couple-headed ones.

Suggested Citation

  • Du Caju, Philip & Rycx, Francois & Tojerow, Ilan, 2015. "Unemployment Risk and Over-Indebtedness: A Micro-Econometric Perspective," IZA Discussion Papers 9572, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9572
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp9572.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gianni Betti & Neil Dourmashkin & Mariacristina Rossi & Ya Ping Yin, 2007. "Consumer over-indebtedness in the EU: measurement and characteristics," Journal of Economic Studies, Emerald Group Publishing, vol. 34(2), pages 136-156, May.
    2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    3. Geoffrey M. Hodgson, 2003. "The hidden persuaders: institutions and individuals in economic theory," Cambridge Journal of Economics, Oxford University Press, vol. 27(2), pages 159-175, March.
    4. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
    5. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Working Papers 0512, Banco de España;Working Papers Homepage.
    6. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.
    7. Keese, Matthias, 2012. "Who feels constrained by high debt burdens? Subjective vs. objective measures of household debt," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 125-141.
    8. Eurosystem Household Finance and Consumption Network, 2013. "The Eurosystem Household Finance and Consumption Survey - Methodological report," Statistics Paper Series 1, European Central Bank.
    9. Olympia Bover & Jose Maria Casado & Sonia Costa & Philip Du Caju & Yvonne McCarthy & Eva Sierminska & Panagiota Tzamourani & Ernesto Villanueva & Tibor Zavadil, 2016. "The Distribution of Debt across Euro-Area Countries: The Role of Individual Characteristics, Institutions, and Credit Conditions," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 71-128, June.
    10. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters,in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    11. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
    12. David ARISTEI & Manuela Gallo, 2012. "The Drivers of Household Over-Indebtedness and Delinquency on Mortgage Loans: Evidence from Italian Microdata," Quaderni del Dipartimento di Economia, Finanza e Statistica 105/2012, Università di Perugia, Dipartimento Economia.
    13. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, August.
    14. Sarah Brown & Gaia Garino & Karl Taylor, 2013. "Household Debt And Attitudes Toward Risk," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(2), pages 283-304, June.
    15. Lusardi, Annamaria & Tufano, Peter, 2015. "Debt literacy, financial experiences, and overindebtedness," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(04), pages 332-368, October.
    16. Giovanni D’Alessio & Stefano Iezzi, 2013. "Household over-indebtedness - Definition and measurement with Italian data," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the Sixth IFC Conference on "Statistical issues and activities in a changing environment", Basel, 28-29 August 2012., volume 36, pages 496-517 Bank for International Settlements.
    17. Mattias Persson, 2009. "Household indebtedness in Sweden and implications for financial stability – the use of household-level data," BIS Papers chapters,in: Bank for International Settlements (ed.), Household debt: implications for monetary policy and financial stability, volume 46, pages 124-135 Bank for International Settlements.
    18. Michael Ehrmann & Michael Ziegelmeyer, 2014. "Household Risk Management and Actual Mortgage Choice in the Euro Area," Staff Working Papers 14-1, Bank of Canada.
    19. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
    20. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 590-602.
    21. Robert B. Ekelund & Franklin G. Mixon & Rand W. Ressler, 1995. "Advertising and information: an empirical study of search, experience and credence goods," Journal of Economic Studies, Emerald Group Publishing, vol. 22(2), pages 33-43, May.
    22. Knobloch, Michael & Reifner, Udo & Laatz, Wilfried, 2008. "iff-Überschuldungsreport 2008: Private Überschuldung in Deutschland," iff-Überschuldungsreport, Institut für Finanzdienstleistungen e.V. (iff), volume 127, number 2008.
    23. Eurosystem Household Finance and Consumption Network, 2013. "The Eurosystem Household Finance and Consumption Survey - Results from the first wave," Statistics Paper Series 2, European Central Bank.
    24. Giuseppe Bertola & Richard Disney & Charles Grant (ed.), 2006. "The Economics of Consumer Credit," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026015, March.
    25. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    26. Sarah Bridges & Richard Disney, 2004. "Use of credit and arrears on debt among low-income families in the United Kingdom," Fiscal Studies, Institute for Fiscal Studies, vol. 25(1), pages 1-25, March.
    27. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 615-643.
    28. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    29. Ampudia, Miguel & van Vlokhoven, Has & Żochowski, Dawid, 2016. "Financial fragility of euro area households," Journal of Financial Stability, Elsevier, vol. 27(C), pages 250-262.
    30. DeVaney, Sharon A. & Lytton, Ruth H., 1995. "Household insolvency: A review of household debt repayment, delinquency, and bankruptcy," Financial Services Review, Elsevier, vol. 4(2), pages 137-156.
    31. repec:mea:meawpa:14283 is not listed on IDEAS
    32. Nicolas Albacete & Peter Lindner, 2013. "Household Vulnerability in Austria – A Microeconomic Analysis Based on the Household Finance and Consumption Survey," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 25, pages 57-73.
    33. Joanne W. Hsu & David A. Matsa & Brian T. Melzer, 2014. "Positive Externalities of Social Insurance: Unemployment Insurance and Consumer Credit," NBER Working Papers 20353, National Bureau of Economic Research, Inc.
    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. Olympia Bover & Jose Maria Casado & Sonia Costa & Philip Du Caju & Yvonne McCarthy & Eva Sierminska & Panagiota Tzamourani & Ernesto Villanueva & Tibor Zavadil, 2016. "The Distribution of Debt across Euro-Area Countries: The Role of Individual Characteristics, Institutions, and Credit Conditions," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 71-128, June.
    2. repec:bis:bisifc:46-11 is not listed on IDEAS

    More about this item

    Keywords

    household finance; over-indebtedness; financial fragility; unemployment; labor market status; HFCS;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:iza:izadps:dp9572. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak). General contact details of provider: http://www.iza.org .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.