Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2011:11: Consumption Smoothing during Unemployment

Jonas Kolsrud ()
Additional contact information
Jonas Kolsrud: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: A vast literature has investigated how unemployment insurance (UI) affects labor supply. However, the distorting effect of UI on labor supply is to a large extent determined by how well UI benefits smooth private consumption, which in turn depends on the resources available to the unemployed. To determine UI’s consumption-smoothing effect, I exploit a kink in the deterministic relationship between previous earnings and unemployment benefits. The ran domized assignment of benefits created by the kink allows me to identify how UI affect the use of private wealth to finance 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 layout. I also find that loans are of great importance to consumption smoothing as more than half the sample lacks buffer savings. This is further emphasized for different subpopulations. Women, couples, and older indi viduals holds significantly larger liquid wealth than men and young singles.

Keywords: Saving; wealth; unemployment benefit; unemployment; consumption smoothing

JEL-codes: D91; J64; J65

45 pages, June 3, 2011

Full text files

FULLTEXT02.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Ulrika Öjdeby ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:uunewp:2011_011This page generated on 2024-09-13 22:17:38.