Job Loss Expectations, Realizations, and Household Consumption Behavior

Melvin Stephens

The Review of Economics and Statistics, 2004, vol. 86, issue 1, 253-269

Abstract: Although the theoretical importance of expectations in decision-making is well known to economists, only a few empirical papers investigate the impact of individual subjective expectations on economic outcomes. This paper examines the link between expectations of future job losses and the subsequent impact that these expectations have on household consumption behavior. The first part of the paper documents the empirical relationship between job loss expectations and subsequent job losses. Subjective job loss expectations have significant predictive power in explaining future job losses even when standard demographic information known to be associated with the prevalence of job displacement is included in the analysis. Furthermore, higher subjective job loss probabilities are correlated with an increased expectation of future earnings declines. Overall, these results indicate that the variable for subjective job loss expectations is a meaningful predictor of subsequent displacement. Since a job displacement results in large and persistent earnings losses, job loss expectations should have an important impact on household consumption smoothing following a job loss. The second part of the paper finds that although a job loss significantly reduces household consumption, there is little evidence that the degree to which households anticipate job losses reduces the impact of displacement on consumption. Alternative models of interpreting responses to expectations questions and of household consumption behavior that may explain these results are discussed. 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (164)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/003465304323023796 link to full text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Job Loss Expectations, Realizations, and Household Consumption Behavior (2003)
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:86:y:2004:i:1:p:253-269

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 ().