Consumption Smoothing under Labor Market Uncertainty: Do Household Characteristics Impact Saving?

Abstract

This study uses a household-level panel dataset to measure the ability of households to smooth consumption during periods of labor market uncertainty. We find a larger consumption response to both income and market uncertainty among households with moderately low levels of income and with female heads. While households are on average quite adept at smoothing consumption in response to both economic uncertainty and income fluctuations, we find evidence that not all consumption is forward looking: poverty is associated with myopic consumption and households above poverty display signs of credit constraints.

Keywords: Consumption Smoothing, Household Choice, Uncertainty

JEL Classification: D12, D14, E21, E32