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Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?

Samuel Bentolila () and Andrea Ichino

No 2539, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we analyse the relationship between unemployment and consumption. We study this relationship with panel data on households in five countries: Spain and Italy (the South), and Germany, Britain, and the US (the North). Our empirical results indicate that an increase in the duration of unemployment spells of male household heads is associated with smaller consumption losses in Spanish and Italian households. We discuss this finding in the light of different market and institutional frameworks. Given that the coverage and generosity of social welfare institutions are both higher in the North, and that credit and insurance markets are also more developed in the North than in the South, existing theories of consumption indicate that in the South consumption should fall more than in the North when the male household head becomes unemployed. This and other evidence supports the hypothesis that extended family networks, which appear to be stronger near the Mediterranean, provide a fundamental source of insurance against unemployment in southern Europe.

Keywords: Consumption; Savings; Unemployment (search for similar items in EconPapers)
JEL-codes: E21 E24 (search for similar items in EconPapers)
Date: 2000-08
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Working Paper: Unemployment and Consumption: are Job Losses Less Painful Near the Mediterranean? (2000)
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