The Long-Run Consumption Effects Of Earnings Shocks

Melvin Stephens

The Review of Economics and Statistics, 2001, vol. 83, issue 1, 28-36

Abstract: Although prior studies of job displacement and disability have measured the impact of these shocks in terms of lost earnings, no previous research has linked these permanent earnings shocks to the long-run consumption smoothing behavior of these households. Because consumption is generally considered a better measure of well-being than is income, understanding the link between these earnings shocks and consumption is important in trying to gauge the magnitude of the long-run impact caused by such events. Using the Panel Study of Income Dynamics, the analysis finds the percentage change in consumption is generally less than that of the head's earnings and total family income, especially at the time of the shock. The results also indicate that displaced households respond to an increase in the probability of future job losses by reducing their consumption prior to a job loss. These results suggest that only focusing on earnings overestimates the impact of these shocks on household wellbeing. 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (121)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/003465301750160018 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:restat:v:83:y:2001:i:1:p:28-36

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().