Job Displacement Insurance and (the Lack of) Consumption-Smoothing

Francois Gerard and Joana Naritomi

American Economic Review, 2021, vol. 111, issue 3, 899-942

Abstract: We study the spending profile of workers who experience both a positive transitory income shock (lump-sum severance pay) and a negative permanent income shock (layoff ). Using de-identified expenditure and employment data from Brazil, we show that workers increase spending at layoff by 35 percent despite experiencing a 14 percent long-term loss. We find high sensitivity of spending to cash-on-hand across consumption categories and for several sources of variation, including predictable income drops. A model with present-biased workers can rationalize our findings, and highlights the importance of the timing of benefit disbursement for the consumption-smoothing gains of job displacement insurance policies.

JEL-codes: D12 G51 J63 J65 O12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Job displacement insurance and (the lack of) consumption-smoothing (2021)
Working Paper: Job displacement insurance and (the lack of) consumption-smoothing (2019)
Working Paper: Job Displacement Insurance and (the Lack of) Consumption-Smoothing (2019)
Working Paper: Job Displacement Insurance and (the Lack of) Consumption-Smoothing (2019)
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DOI: 10.1257/aer.20190388

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