Borrowing Constraints, the Cost of Precautionary Saving, and Unemployment Insurance

Thomas Crossley () and Hamish Low

Quantitative Studies in Economics and Population Research Reports from McMaster University

Abstract: Job losers exhibit significant heterogeneity in wealth holdings and in the marginal propensity to consume transitory income. We consider potential sources of this heterogeneity, whether (some of) the unemployed face borrowing constraints, and the implications of this heterogeneity for unemployment insurance. We show theoretically how the optimal benefit can depend significantly on borrowing constraints, and on other (non-precautionary) savings motives. We report empirical evidence that (i) a quarter of job losers cannot borrow for current consumption, (ii) this constraint is binding for a much smaller fraction, and (iii) that "excess sensitivity" is not limited to the constrained.

Keywords: unemployment; savings; credit constraints; life-cycle; consumption; unemployment insurance (search for similar items in EconPapers)
JEL-codes: D91 H53 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2004-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://socserv.mcmaster.ca/qsep/p/qsep391.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://socserv.mcmaster.ca/qsep/p/qsep391.pdf [302 Moved Temporarily]--> https://socialsciences.mcmaster.ca/qsep/p/qsep391.pdf)

Related works:
Journal Article: Borrowing constraints, the cost of precautionary saving and unemployment insurance (2011)
Working Paper: Borrowing constraints, the cost of precautionary saving and unemployment insurance (2005)
Working Paper: Borrowing Constraints, the Cost of Precautionary Saving, and Unemployment Insurance (2005)
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:mcm:qseprr:391

Access Statistics for this paper

More papers in Quantitative Studies in Economics and Population Research Reports from McMaster University Contact information at EDIRC.
Bibliographic data for series maintained by ().