Borrowing Constraints, the Cost of Precautionary Saving, and Unemployment Insurance

Thomas Crossley () and Hamish Low

Social and Economic Dimensions of an Aging Population Research Papers from McMaster University

Abstract: Job losers exhibit significant heterogeneity in wealth holdings and in the marginal propensity to consume transitory income. We consider potential sources of this heterogeneity, whether (some of) the unemployed face borrowing constraints, and the implications of this heterogeneity for unemployment insurance. We show theoretically how the optimal benefit can depend significantly on borrowing constraints, and on other (non-precautionary) savings motives. We report empirical evidence that (i) a quarter of job losers cannot borrow for current consumption, (ii) this constraint is binding for a much smaller fraction, and (iii) that "excess sensitivity" is not limited to the constrained.

Keywords: unemployment; savings; credit constraints; life-cycle; consumption; unemployment insurance (search for similar items in EconPapers)
JEL-codes: D91 H53 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2005-01
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Borrowing constraints, the cost of precautionary saving and unemployment insurance (2011)
Working Paper: Borrowing constraints, the cost of precautionary saving and unemployment insurance (2005)
Working Paper: Borrowing Constraints, the Cost of Precautionary Saving, and Unemployment Insurance (2004)
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