Job Loss Expectations, Durable Consumption and Household Finances: Evidence from Linked Survey Data

Abstract

Job security is important for durable consumption and household savings. Using surveys, workers express a probability that they will lose their job in the next 12 months. In order to assess the empirical content of these probabilities, we link survey data to administrative data with labor market outcomes. Workers predict job loss quite well, in particular those whose job loss is followed by unemployment. Workers with higher job loss expectations acquire cheaper cars, and are less likely to buy new cars. In line with models of precautionary saving, higher job loss expectations are associated with more savings and less exposure to risky assets.

Stable Income, Stable Family

“…This may be a result of recall error with regard to the timing of job losses. That said, it is also consistent with the fact that a significant share of workers anticipate layoffs before they happen (Stephens, 2004;Hendren, 2017;Pettinicchi, Vellekoop et al, 2019), which is not surprising because many workers are forewarned about upcoming layoffs and others may suspect the possibility if they know their firm is in distress or if they experience wage stagnation, reduced overtime, etc. That individuals "feel the effects" of an impending layoff is a consistent pattern in the literature on laid-off workers going back to Jacobson, LaLonde, and Sullivan (1993).…”

“…For examples beyond Jacobson, LaLonde, and Sullivan (1993), see Sullivan and von Wachter (2009), Lindo (2010), and Couch and Placzek (2010). Along similar lines, Hendren (2017) finds that consumption decreases and spousal labor supply increases in anticipation of job losses, and Pettinicchi, Vellekoop et al (2019) finds similar effects on consumption.…”

Divisive jobs: three facets of risk, precarity, and redistribution

“…The role of expectations in decision-making is well known, but so far few empirical papers investigated the impact of subjective expectations on economic and political outcomes. For example, home price expectations influence individuals' selling decisions (Bottan and Perez-Truglia, 2020), macroeconomic or job loss expectations affect consumption behavior (Pettinicchi and Vellekoop, 2019;Roth and Wohlfart, 2020), and perceptions of crime and expectations of job loss determine redistribution preferences (Margalit, 2013;Rueda and Stegmueller, 2016;O'Grady, 2019). This suggests that although correlated with objective indicators of actual job loss (Stephens, 2004), subjective expectations can still have a distinct, direct effect on preferences and behavior (Rainer and Siedler, 2008;Pettinicchi and Vellekoop, 2019).…”

Personality development in disruptive times: The impact of personal versus collective life events

“…For example, Ada might have quit her job because she has grown to dislike it, or she changed voluntarily preparing for a different career (Allen et al, 2005;Thielmann & de Vries, 2021). Similarly, Cem foreseeing an economic hardship might have changed into a more frugal person or it was the growing greed in Cem and millions of other people that contributed to the economic crisis happening in the first place (Pettinicchi & Vellekoop, 2019;R. D. Smith, 2010).…”