Household resilience to adverse macroeconomic shocks: evidence from Czech microdata

We develop a methodology for identifying financially distressed households and use it for testing the responses to shocks to the unemployment rate, the interest rate and prices of essential expenditure in the Czech Republic. We extend the approach of Johansson and Persson (2006) for Sweden and Albacete and Fessler (2010) for Austria in the literature to allow for full labour market transitions between employment and unemployment, and, due to data availability, to account for heads and spouses within households. This improvement may lead to a higher response of household distress incidence, due to the unemployment rate shock, than in both Sweden and Austria, while the effects due to the interest rate shock are of similar size as in Austria. We illustrate the use of our approach for stress testing households’ ability to pay their debts using macroeconomic scenarios from the CNB’s official forecast and from the CNB’s Financial Stability Report. The results highlight the importance of using micro-level datasets in the analysis of household distress incidence, as the impact of shocks is more pronounced among lower-income households.     

Spain is different: Falling trends of inequality

In this article we characterize the evolution of inequality in hourly wages, hours of work, labor earnings, household disposable income and household consumption for Spain between 1985 and 2000. We look at both the Encuesta Continua de Presupuestos Familiares and the European Household Community Panel. Our analysis shows that inequality in individual net labor earnings and household net disposable income has decreased substantially. The decreases in the tertiary education premium and in the unemployment rate have been key ingredients to understand this falling trend. Public transfers have played a crucial role in smoothing out the inequality arising in the labor market, but instead the Spanish family does not seem to have been an important insurance mechanism. Regarding household consumption, inequality has fallen much less than inequality in household net disposable income, with the decrease mostly concentrated in the second half of the eighties. This suggests that the reduction in income inequality has affected the sources of permanent differences between households only during the second half of the eighties. Our estimates of the earnings process for the period are consistent with this view.     

Consumption in the shadow of unemployment

By how much do employed households reduce their consumption when the aggregate unemployment rate rises? In Spain during the Great Recession a one point increase in the unemployment rate was related to a strong reduction in household consumption of more than 0.7% per equivalent adult. This reduction is consistent with forward-looking agents responding to downward revisions of their expectations on future income growth rates: the shadow of unemployment. Using consumption panel data that include information on physical quantities we show that the drop in consumption expenditure was truly a reduction in quantities, and not a switch to cheaper alternatives.     

Sri Lankan households a decade after the Indian Ocean tsunami

This study estimates the causal effect of the 2004 Indian Ocean tsunami on household consumption and income in Sri Lanka 8 years after the event, using a difference‐in‐differences methodology and extensive household survey data. The analysis finds a strong association between the area‐wide tsunami disaster shock and increases in household income and consumption in the long term. The increase in consumption is much smaller than the observed increase in income; while the increase in income is mostly observed in nonagricultural wage income (and a decline in agricultural income). We also find that households in high‐income regions and lower‐damage districts experienced a much better recovery, in terms of income, than those in poorer regions or those districts that experienced more destruction. Deviating from the common observation on short‐term adverse impacts of catastrophic disasters in low‐ and middle‐income countries, these results are suggestive of a potential for long‐lasting and more successful recovery scenarios. Still, Sri Lanka received a very large amount of external assistance post‐tsunami—an amount that may not be replicable elsewhere. It is likely that this massive inflow of assistance, further helped by the end of the armed conflict in 2009, has contributed significantly to this relatively successful recovery.     

Demand for international reserves: a review article

This paper examines the twofold role of the labour market in household economic risk management: as a source of household consumption risk, and as an instrument for insuring consumption against contingencies. It outlines a framework for analysing this twofold role of the labour market, and uses data from the British Household Panel Survey 1991–1996 to explore this empirically. It identifies the relative importance of the labour market, and other factors, in producing changes in the financial situation of individuals. It also implements ‘full insurance’ tests of whether unemployment and other external shocks to the household are correlated with consumption growth. It concludes that labour market factors are a dominant source of change in individuals financial situation, with a predominantly positive effect on the financial situation of the better off, and a predominantly negative impact on the financial situation of the less well off. It also finds that households are unable to fully insure their consumption against unemployment, and that as a result labour market factors pose a significant economic risk.     

经济转轨、不确定性与城镇居民消费行为

本文利用中国社会科学院经济研究所收入分配课题组 1 995、1 999及 2 0 0 2年的城镇住户调查数据分析收入不确定性、失业风险、医疗支出不确定性及教育支出等因素对城镇居民消费行为的影响。研究结果表明这些不确定性因素对城镇居民消费水平具有显著的负效应 ,但效应的大小也因这些因素的可预期性的变化而变化。因此增强政策的可预见性、完善社会保障制度等措施对化解居民收支风险将具有重要作用。     

Optimal age‐dependent income taxation in a dynamic extensive model: The case for negative participation tax on young people

We consider optimal age‐dependent income taxation in a dynamic model where the labor‐leisure choice is the extensive margin, each household faces idiosyncratic shocks to labor productivity and a pecuniary cost to work, and there is no insurance market against the shocks. We show that the well‐known property of the optimal participation tax rate in the static model continues to hold in our dynamic economy, that is, the participation tax rates for some income groups with low consumption are likely negative. In dynamic models, the optimal participation tax rate depends on age and on labor income. Our numerical simulations suggest that a negative participation tax should be restricted to young households.     

Economic status of households and labour supply to market and non-market activities mdash; some results from a poor rural economy

Assuming a given underlying utility structure for all households, we have demonstrated that the differential labour supply behaviour among household categories results owing to the different sets of constraints they face depending on their economic status and asset ownership. Using the criteria implied by the theoretical model four household gorups are defined. The labour supply functions estimated for these four groups support the theoretical result of significantly different supply behaviour. The empirical exercise, as expected, indicates that the labour supply decision of the subsistence group is guided by their need to achieve the minimum level of consumption while the middle-income households, who do not have enough non-labour income to meet their minimum subsistence need, tend to work longer hours in market activities than the workers from high-income households. However, market labour supply by high-income households is found to be relatively more sensitive to changes in the wage rate. The behaviour of the household groups differ so significantly that if an aggregate model is estimated ignoring inter-household differences, the predicted hours will grossly over-estimate labour supply to market activities.     

健康风险冲击对农户收入的影响

本文基于中国8个省份、1354个农户、跨度15年的微观面板数据,测算了大病冲击对于农户长期收入的影响以及健康风险冲击持续的时间。我们发现:(1)大病冲击在随后的12年里对于农户人均纯收入都有显著的负面影响;(2)大病冲击对于农户的短期与中期影响使得患病户人均纯收入平均降低5%—6%;(3)健康风险冲击的长期影响可持续大约15年,并且冲击对于中低收入农户的影响更为严重。     

Employment gains from minimum‐wage hikes under perfect competition: A simple general‐equilibrium analysis

Contrary to conventional wisdom, higher minimum wages may lead to greater levels of employment under perfect competition. We demonstrate this possibility in a simple general‐equilibrium model of involuntary unemployment, with two goods produced by two factors and consumed by two representative households. Within our model, hiking a minimum wage redistributes income between heterogeneous consumers. This redistribution may create an excess demand for the labor‐intensive good, and hence increase total employment to restore equilibrium, despite the fact that every firm becomes less labor intensive.     

Food consumption changes during 2020 lockdown in Italy

The lockdown imposed to limit the diffusion of COVID-19 in Italy affected the economic situation negatively. The income of many households decreased, and people were forced to stay home. Both these factors influenced food consumption: on the one hand less income means less money for purchases, on the other, the negative psychological impact of lesser income and the pandemic shifted the consumption towards alcohol and tobacco. Using survey data, this paper shows how the negative economic shock due to lockdown, together with the restrictions imposed by it, affected the consumption of food items in a region of Norther Italy.     

Does urbanization reduce rural poverty? Evidence from Vietnam

This paper uses data from household surveys to contribute to the urbanization-poverty nexus literature by assessing the effect of urbanization on income, expenditure, and poverty in rural households in Vietnam. We find that the urbanization process stimulates the transition from farm to non-farm activities in rural areas. More specifically, urbanization tends to reduce farm income and increase wages and non-farm income in rural households. This suggests that total income and consumption expenditure of rural households are more likely to increase with urbanization. Finally, we find also that urbanization helps decrease the expenditure poverty rate of rural households, albeit by a small magnitude.     

CREDIT CONSTRAINTS IN THE MARKET FOR CONSUMER DURABLES: EVIDENCE FROM MICRO DATA ON CAR LOANS*

We investigate the significance of borrowing constraints in the market for consumer loans. Using data from the Consumer Expenditure Survey on auto loan contracts we estimate the elasticities of loan demand with respect to interest rate and maturity. We find that, with the exception of high income households, consumers are very responsive to maturity and less responsive to interest rate changes. Both elasticities vary with household income, with the maturity elasticity decreasing and the interest rate elasticity increasing with income. We argue that these results are consistent with the presence of binding credit constraints in the auto loan market.     

The surprisingly low importance of income uncertainty for precaution

While it is common to use income uncertainty to explain household saving decisions, there is much disagreement about the importance of precautionary saving. This paper suggests that income uncertainty is not an important motive for saving, although households do have other precautionary reasons to save. Using a question from the Survey of Consumer Finances that asks how much households want for precautionary purposes, this paper shows that expressed household preferences, and liquid savings, are much lower than predicted by standard modeling assumptions. Households rarely list unemployment as a reason to save. Perceived income uncertainty does not affect liquid savings or precautionary preferences. Neither does being in an occupation with higher income volatility. Instead, households seem very concerned with expenditure shocks.     

The Labor Market as a Smoothing Device: Labor Supply Responses to Crop Loss

The paper studies the way in which labor supply responses enable households to smooth consumption in the face of crop loss. The 1993 Indonesian Family Life Survey is unusual because it contains self-reported information on crop loss and on household responses to crop loss. Of those households that report a crop loss, 41.6% also report that they responded by taking an extra job. Using these self-reported measures, the authors find evidence which suggests that the income associated with this shock-induced labor supply is important in allowing the household to avoid reducing consumption expenditure. Household members, however, do not seem to increase their total hours of work. They appear to just reallocate their time from household farming to other labor market activities.     

Consumption and Income Inequality in Australia

Consumption may be a more appropriate measure of household well-being than income or earnings. Using four ABS Household Expenditures Surveys collected between 1975 and 1993, we compare trends in consumption and income inequality among Australian households. We find that consumption is much more equal than income. While there were significant increases in both income and consumption inequality, consumption inequality rose by much less. One interpretation of the results is that some income inequality in Australia reflects transitory fluctuations which households can smooth,'and that part of the growth in income inequality reflects an increase in these transitory fluctuations.     

HOUSEHOLDS, GOODS, AND WELL-BEING

Household economies translate goods into well-being through production, co-operation, and distribution. Between market goods to households and well-being to persons, value is added. Income is a measure of goods, consumption well-being is measured by equivalent income. An absolute interpretation of equivalent income is argued as the value to persons of consumption well-being after household economies. Guidance is suggested on the choice of equivalence scales, and for the measurement of well-being and inequality.     

The Household, Time Use and Tax Policy

This paper is concerned with modelling household decisions andthe welfare effects of tax policy. It seeks to emphasise theimportance of a model that incorporates household productionand can take account of the evident female labour supply heterogeneityacross two-parent families. If, after having children, someproportion of households substitute domestic for market laboursupply, the income and consumption variables used as the taxbase in most countries may be poorly correlated with livingstandards. Taxes and welfare programs based on these variablesmay increase inequality by shifting the overall tax burden tolow and middle wage families with both partners in work, awayfrom families with much higher wages and in which only one memberworks to earn the same joint market income. The paper combinesdata on time use, income, taxes and benefits to show how theytrack female labour supply over the life cycle, resulting inmuch higher tax burdens on two-earner households. (JEL D13,D91, H31, J22)     

Long-term unemployment and labour force participation: a decomposition of unemployment to test for the discouragement and added worker hypotheses

We sharpen tests for ‘discouragement’ and ‘added worker’ effects by splitting the explanatory variable – the unemployment rate – into a short-term component and a long-term component. While short-term unemployment (STU) might not result in additional workers on a large scale, long-term unemployment (LTU) reduces household income more, increasing the need for additional income. On the other hand, it may discourage older workers for psychological and sociological reasons. Applying our model to the German labour market, these hypotheses could be confirmed. Even for men, about whom only a few empirical studies on this issue are available, distinguishing between STU and LTU reveals added worker as well as discouragement effects.     

Economic growth and the employer of last resort: A simple model of flexicurity capitalism

This paper presents a model of economic growth with unemployment due to labor market rigidities. The economy consists of a firm that maximizes profits, of a government and of two types of households that maximize inter-temporal utility. One household supplies skilled labor at the first labor market, the other household supplies simple labor at the second labor market. The government in the economy raises taxes and uses its revenues to employ labor receiving unemployment benefits, to finance transfers to the household in the second labor market and to finance public spending. We analyze both the version with exogenous growth as well as an endogenous growth variant, where growth is made endogenous by assuming positive externalities of capital. The exogenous growth model is characterized by global determinacy while it is locally indeterminate. The endogenous growth model can be globally indeterminate with the high balanced growth path being locally indeterminate and the low balanced growth path being locally determinate. We also study how taxation and how the speed of the wage adjustment affect the economy.