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Title: Household Consumption-Income Ratio and Employment Risk
Citation Type: Miscellaneous
Publication Year: 2019
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Abstract: Income uncertainty together with limited insurance amplify the aggregate demand response to shocks. Yet, while the role of credit constraints has been clearly established empirically, this is not the case for the link between income uncertainty and demand. Using data on consumption, income and employment growth across 28 MSA from the Consumer Expenditure Survey, I document with an instrumental variable strategy that the consumption-income ratio is positively correlated with employment growth, in contradiction to standard New Keynesian models, and increases by 0.4 percentage points in response to a one percentage point increase in employment growth. Based on this estimate, a sizable fraction of 42% of the increase in saving between 2006 and 2010 can be attributed to negative employment growth.
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Authors: Stamm, Kersten
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Data Collections: IPUMS CPS
Topics: Labor Force and Occupational Structure, Poverty and Welfare
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