Consumption Smoothing during Unemployment
2011 (English)Report (Other academic)
A vast literature has investigated how unemployment insurance (UI) affects labor supply. However, the distorting e¤ect of UI on labor supply is to a large extent determined by how well UI bene.ts smooth private consumption, which in turn depends on the resources available to the unemployed. To determine UI.s consumption-smoothing e¤ect, I exploit a kink in the deterministic relationship between previous earnings and unemployment bene.ts. The randomized assignment of bene.ts created by the kink allows me to identify how UI a¤ect the use of private wealth to .nance consumption during unemployment spells. Using Swedish data for 2000 - 2002 I find that a large share of the unemployed actually can consume at the same level as they did prior to the layo¤. I also .nd that loans are of great importance to consumption smoothing as more than half the sample lacks bu¤er savings. This is further emphasized for di¤erent subpopulations. Women, couples, and older individuals holds signi.cantly larger liquid wealth than men and young singles.
Place, publisher, year, edition, pages
Uppsala: Department of Economics, Uppsala University , 2011. , 45 p.
Working paper / Department of Economics, Uppsala University (Online), ISSN 1653-6975 ; 2011:11
Saving, wealth, unemployment bene
t, unemployment, consumption smoothing.
Research subject Economics
IdentifiersURN: urn:nbn:se:uu:diva-209308OAI: oai:DiVA.org:uu-209308DiVA: diva2:656678