Working Paper: CEPR ID: DP16131
Authors: Asger Lau Andersen; Amalie Sofie Jensen; Niels Johannesen; Claus T. Kreiner; Søren Leth-Petersen; Adam Sheridan
Abstract: How do households respond to job loss, and which self-insurance channels are most important? By linking high-frequency customer data from the largest bank in Denmark with government administrative registers, we quantify a broad range of responses to job loss in a unified empirical framework. Two responses stand out: during the first 24 months after job loss, reductions in household spending account for 30% of the income loss, while lower saving in liquid assets accounts for 50%. Other response margins highlighted in the literature - spousal labor supply, private transfers, home equity extraction, mortgage refinancing, and consumer credit - are less important.
Keywords: cost of unemployment; social insurance
JEL Codes: J64; D31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Job loss (J63) | Reduced household spending (D12) |
| Job loss (J63) | Lower savings in liquid assets (E21) |
| Job loss (J63) | Increased spousal labor supply (D13) |
| Job loss (J63) | Increased private transfers and other inflows (H87) |
| Job loss (J63) | Lower net debt repayments (G32) |