Consumption Smoothing under Labor Market Uncertainty: Do Household Characteristics Impact Saving?
39 Pages Posted: 10 Oct 2019 Last revised: 14 May 2020
Date Written: May 11, 2020
We examine the household consumption response to fluctuations in income and uncertainty, exploiting a large panel dataset that spans the period of the Great Recession. The results show that after controlling for changes in realized income, both household-specific income uncertainty and local labor market uncertainty depress consumption spending. We also find evidence of heterogeneity in consumption behavior, most notably an inverted U-shape response to income fluctuation and a greater vulnerability to labor market risk by male-only headed households and those with relatively intensive levels of occupation-specific human capital.
Keywords: Consumption Smoothing, Great Recession, Uncertainty
JEL Classification: D12, D14, E21, E32
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