Job displacement insurance and (the lack of) consumption-smoothing
Gerard, F. & Naritomi, J.
(2021).
Job displacement insurance and (the lack of) consumption-smoothing.
American Economic Review,
111(3), 899 - 942.
https://doi.org/10.1257/aer.20190388
(2021).
Job displacement insurance and (the lack of) consumption-smoothing.
American Economic Review,
111(3), 899 - 942.
https://doi.org/10.1257/aer.20190388
We study the spending profile of workers who experience both a positive transitory income shock (lump-sum severance pay) and a negative permanent income shock (layoff). Using de-identified expenditure and employment data from Brazil, we show that workers increase spending at layoff by 35 percent despite experiencing a 14 percent long-term loss. We find high sensitivity of spending to cash-on-hand across consumption categories and for several sources of variation, including predictable income drops. A model with present-biased workers can rationalize our findings, and highlights the importance of the timing of benefit disbursement for the consumption-smoothing gains of job displacement insurance policies.
Explore Further
- D12 - Consumer Economics: Empirical Analysis
- J63 - Turnover; Vacancies; Layoffs
- J65 - Unemployment Insurance; Severance Pay; Plant Closings
- O12 - Microeconomic Analyses of Economic Development
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Naritomi, J. & Gerard, F.
(2021).
Data and Code for: Job Displacement Insurance and (the Lack of) Consumption-Smoothing.
[Dataset]. OpenICPSR.
https://doi.org/10.3886/e121241v1
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picture_as_pdf - AER_CONSUMPTION_Appendix.pdf
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subject - Accepted Version
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picture_as_pdf - AER_CONSUMPTION_Final_noheading.pdf
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subject - Accepted Version