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Consumption in the shadow of unemployment |
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| Institution: | 1. Dong Fureng Institute of Economic and Social Development, Wuhan University, China;2. Institute of Health and Society, Department of Health Management and Health Economics, University of Oslo, Norway;3. BonnEconLab, University of Bonn, Germany;4. National Research University Higher School of Economics (HSE), Moscow, Russian Federation;5. Health Services Research Unit, Akershus University Hospital, Norway;1. Department of Economics, Northwestern University, USA;2. University of Virginia, Department of Economics, Charlottesville, VA 22903, USA;3. Department of Economics, University of Zurich, Switzerland |
| Abstract: | 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. |
| Keywords: | Consumption Unemployment Life-cycle models Spain Great Recession |
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