The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings

Abstract

This paper develops an agent-based model to quantify the impact of COVID-19 on household debt and savings. To build a representative cross-section of households that vary by income, debt portfolios and consumption baskets, we merge data from the Survey of Household Spending and the Survey of Financial Security. We construct paths for consumption and employment over the crisis, accounting for heterogeneous risk of unemployment across demographics, government transfers, and substitution between expenditure categories that vary in contact intensity. Our model simulations yield a heterogeneous effect of COVID-19 across the income distribution. Low-income households face the highest risk of unemployment, but transfers provide generous income replacement. Middle-income job losers see the fastest rise in debt because transfers only partially replace lost income. Most unplanned savings are accumulated by high-income households that face lower risk of unemployment and larger declines in hard-to-distance spending. We find the rise in savings could generate a brief jump of nearly 6% of monthly consumption.Résumé. Effets hétérogènes de la COVID-19 sur la consommation, la dette et l'épargne des foyers canadiens. Dans cet article, nous développons un modèle multiagent afin de chiffrer l'impact de la COVID-19 sur la dette et l'épargne des ménages. Compte tenu des disparités en matière de revenus, de portefeuilles de dettes ou de paniers de consommation, et afin d'obtenir un échantillonnage représentatif des foyers, nous avons fusionné les données de l'Enquête sur les dépenses des ménages et celles de l'Enquête

Food Insecurity amid the COVID-19 Pandemic: Food Charity, Government Assistance, and Employment

“…Given the more stringent eligibility criteria for EI ( Canada 2020c ), some CERB applicants may be EI-ineligible workers who were at higher risk of food insecurity even before the pandemic (e.g., younger, temporary, and informal workers) ( Canada 2020a ; McIntyre et al 2012 ). Simulations have suggested that the CERB may have benefited the bottom income quintile the most by overcompensating for their income loss ( MacGee, Pugh, and See 2020 ), and this income support has anecdotally been suggested as a possible explanation for the reductions in demand reported by some food banks ( Food Banks Canada 2020 ). However, research is needed to determine how the receipt of CERB and the federal programs that have now replaced CERB have affected household food insecurity.…”

The Impact of Saving on Financial Resilience

“…Despite the interventions noted above, savings trajectories in Canada appear to be moving in the wrong direction. In Canada, savings rates trended up during the 2019 pandemic but have subsequently reverted to pre-pandemic levelslevels described by some policy makers as dangerously low (Baldwin, 2022, MacGee, 2022 (see Figure 1 and 2). As well, while incomes in Canada appear to peak in the 45 to 54 age group, savings rates peak in the 35 to 44 age groupwell before the peak predicted in the Life Cycle Hypothesis (see Figure 3).…”

“…In our analysis we include specific demographic features (see Table 2 below) in order to observe wealth accumulation vis a vis potential demographic drivers. Researchers have linked savings rates and resiliency to several demographic factors including age (Maynard et al, 2008, Baldwin, 2022, income (Dynan et al, 2004, Turner & Luea, 2009, MacGee 2022, Cruz 2016), household composition (Cobb-Clark et al, 2016, and gender (Fisher, 2010). These factors are often combined under 'life cycle model' (Feiveson et al, 2019).…”

Household Saving in Crisis – Literature Review

“…In their cases, reducing spending due to the lack of opportunities caused by lockdowns allowed for unplanned savings. The biggest losers of the pandemic appeared to be middle-income households (MacGee et al, 2022). They received financial support, but it was lower than the reduction of their income.…”