Working Paper: CEPR ID: DP2539
Authors: Samuel Bentolila; Andrea Ichino
Abstract: In this paper we analyse the relationship between unemployment and consumption. We study this relationship with panel data on households in five countries: Spain and Italy (the South), and Germany, Britain, and the US (the North). Our empirical results indicate that an increase in the duration of unemployment spells of male household heads is associated with smaller consumption losses in Spanish and Italian households. We discuss this finding in the light of different market and institutional frameworks. Given that the coverage and generosity of social welfare institutions are both higher in the North, and that credit and insurance markets are also more developed in the North than in the South, existing theories of consumption indicate that in the South consumption should fall more than in the North when the male household head becomes unemployed. This and other evidence supports the hypothesis that extended family networks, which appear to be stronger near the Mediterranean, provide a fundamental source of insurance against unemployment in southern Europe.
Keywords: consumption; savings; unemployment
JEL Codes: E21; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| duration of unemployment spells of male household heads (J64) | consumption losses in Spanish and Italian households (D10) |
| duration of unemployment spells of male household heads (J64) | consumption losses in German, British, and US households (D10) |
| extended family networks in Southern Europe (Z13) | consumption smoothing during unemployment (J65) |
| financial help from relatives during unemployment spells (J65) | mitigation of adverse effects of unemployment on consumption (J65) |
| welfare systems in Northern Europe (I38) | consumption losses during unemployment (J65) |