Job Insecurity and Financial Distress

Abstract:     
This paper investigates the effects of job insecurity on households' likelihood of experiencing financial distress. Households with less secure jobs are likely to experience drops in income more frequently than households with stable and well-protected jobs. Given imperfect financial markets and the absence of unemployment subsidies, these households will thus have more difficulty in smoothing consumption, resulting in financial distress. Households’ abilities to deal with financial decisions (i.e. financial literacy) can mitigate these problems. Our results suggest that greater job insecurity increases the probability of being in financial distress more (i.e. the ratio of odds is larger than one) than other working statuses (e.g. unemployment). However, a high level of financial literacy can counterbalance this effect.

Number of Pages in PDF File: 16

Keywords: Personal Finance, Debt, Financial Distress, Job Insecurity

JEL Classification: C23, C25, D14

working papers series