Accessorizing. The effect of union contract renewals on consumption

Effrosyni Adamopoulou and Roberta Zizza

No 1024, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper we use information on monthly wage increases set by collective agreements in Italy and exploit their variation across sectors and over time in order to examine how household consumption responds to different types of positive income shocks (regular tranches versus lump-sum payments). Focusing on single-earner households, we find that the Permanent-Income Hypothesis holds empirically, since total and food consumption do not exhibit excess sensitivity to anticipated income shocks. Consumption does not respond at the date of the announcement of income increases either, as these are known to compensate workers for the overall loss in their wages’ purchasing power. We also find, in line with the Permanent-Income Hypothesis, that consumption responds, but only a little, to transitory and less anticipated shocks, as the expenditures on clothing & shoes increase upon the receipt of the lump-sum payments. This finding can be interpreted as a "signaling-by-consuming" behaviour given that these goods represent conspicuous consumption. There is also some weak evidence of the existence of liquidity constraints regarding expenditures on strictly durables.

Keywords: union contracts; consumption; permanent income hypothesis (search for similar items in EconPapers)
JEL-codes: D12 E21 J51 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-dem, nep-lab and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1024_15

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