Series: Working Papers. 0225.
Author: Andrew Benito.
Topics: Uncertainty | Quantitative methods | Household finances | Labour market | Microeconometrics and microdata.
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Abstract
The paper confronts a key implication of the precautionary model of saving/consumption, using micro-data on British households. The results provide support for the key proposition that job insecurity affects consumption. A one standard deviation increase in unemployment risk for the head of household is estimated to reduce consumption by 2.7 per cent. This effect is greater for the young, those without non-labour income and manual workers—for whom precautionary effects might be expected to be stronger a priori. Consumer durables purchases are also found to be inversely related to unemployment risk.