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Does job insecurity affect household consumption?

Author

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  • Andrew Benito
Abstract
This paper confronts implications of precautionary saving models with microdata on British households. The results provide support for the central proposition that job insecurity depresses household consumption levels. A one standard deviation increase in unemployment risk for the head of household is estimated to reduce household consumption by 2.7%. Interpreting the spread of the distribution across workers in job insecurity levels as consisting of four standard deviations, this implies that moving from the bottom to the top of the distribution gives rise to a reduction in consumption of 11%, ceteris paribus. This effect is estimated to be greater for the young, those without non-labour income and manual workers, a pattern also consistent with the predictions of precautionary saving models. The paper then studies the propensity for households to purchase durable goods and finds durables purchases to be delayed significantly by higher unemployment risk. The paper therefore demonstrates that job insecurity affects aggregate demand through both non-durable and durable expenditure, controlling for other influences including estimated permanent income.

Suggested Citation

  • Andrew Benito, 2004. "Does job insecurity affect household consumption?," Bank of England working papers 220, Bank of England.
    • Handle: RePEc:boe:boeewp:220
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    References listed on IDEAS

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    Cited by:

    1. Fischer, Björn & Köhler-Ulbrich, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 330, European Central Bank.
    2. Dickerson, Andy & Green, Francis, 2012. "Fears and realisations of employment insecurity," Labour Economics, Elsevier, vol. 19(2), pages 198-210.
    3. Chou, Wan-Jung & Huang, Yu-Chia & Chang, Ching-Cheng, 2015. "Precautionary Intentions and Risk Perceptions: Empirical Evidence from the Victims of Typhoon Morakot," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205549, Agricultural and Applied Economics Association.
    4. Hatice Gokce Karasoy, 2015. "Consumer Confidence Indices and Financial Volatility," CBT Research Notes in Economics 1516, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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