Article,
How Do Households Respond to Job Loss? Lessons from Multiple High-Frequency Datasetst
Affiliations
- [1] Ctr Econ Behav & Inequal CEBI, Copenhagen, Denmark [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD];
- [2] Univ Copenhagen, Copenhagen, Denmark [NORA names: KU University of Copenhagen; University; Denmark; Europe, EU; Nordic; OECD]
Abstract
How much and through which channels do households self-insure against job loss? Combining data from a large bank and from gov-ernment sources, we quantify a broad range of responses to job loss in a unified empirical framework. Cumulated over a two-year period, households reduce spending by 30 percent of their income loss. They mainly self-insure through adjustments of liquid balances, which account for 50 percent of the income loss. Other channels -spousal labor supply, private transfers, home equity extraction, mortgage refinancing, and consumer credit -contribute less to self-insurance. Both overall self-insurance and the channels vary with household characteristics in intuitive ways. (JEL D12, G21, G51, J64, J65)