DP16131 How Do Households Respond to Job Loss? Lessons from Multiple High-Frequency Data Sets

Author(s): Asger Lau Andersen, Amalie Sofie Jensen, Niels Johannesen, Claus T. Kreiner, Søren Leth-Petersen, Adam Sheridan
Publication Date: May 2021
Keyword(s): Cost of unemployment, Social Insurance
Programme Areas: Labour Economics, Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16131

How do households respond to job loss, and which self-insurance channels are most important? By linking high-frequency customer data from the largest bank in Denmark with government administrative registers, we quantify a broad range of responses to job loss in a unified empirical framework. Two responses stand out: during the first 24 months after job loss, reductions in household spending account for 30% of the income loss, while lower saving in liquid assets accounts for 50%. Other response margins highlighted in the literature - spousal labor supply, private transfers, home equity extraction, mortgage refinancing, and consumer credit - are less important.