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Job displacement insurance and (the lack of) consumption-smoothing

Gerard, François and Naritomi, Joana (2021) Job displacement insurance and (the lack of) consumption-smoothing. American Economic Review, 111 (3). 899 - 942. ISSN 0002-8282

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Identification Number: 10.1257/aer.20190388

Abstract

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.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2021 American Economic Association
Divisions: International Development
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J63 - Turnover; Vacancies; Layoffs
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J65 - Unemployment Insurance; Severance Pay; Plant Closings
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
Date Deposited: 04 Nov 2020 11:09
Last Modified: 20 Jul 2021 01:28
URI: http://eprints.lse.ac.uk/id/eprint/107127

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