Shocks, stocks and socks: smoothing consumption over a temporary income loss

Recent research has demonstrated that some households cut back on expenditures in an unemployment spell. Moreover, some of these households respond to variation in the transitory income provided by unemployment insurance benefits. This suggests that these households are constrained in the sense that they respond to variations in current income even if these do not have any permanent impact. In this paper we take up the question of how households in temporarily straitened circumstances cut back and how they spend marginal dollars of transfer income. Our theoretical and empirical analysis emphasises the importance of allowing for the fact that households buy durable as well as non-durable goods. The theoretical analysis shows that in the short run households can significantly cut back on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables. We present an empirical analysis based on a Canadian survey of workers who experienced a job separation. Exploiting changes in the unemployment insurance system over our sample period we show that cuts in UI benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures. These effects are particularly strong for households with no liquid assets and/or households in which the lost income was ‘important’ for the household.consumption; expenditure; durables; unemployment; unemployment insurance

The Life Cycle Model of Consumption and Saving

The life-cycle model is the standard framework which economists use to think about the intertemporal allocation of time, money and effort. The model suggests that households should `smooth' expenditures. One of the strengths of the model is that it provides a single framework which integrates allocation at many different frequencies. Accordingly, we provide an assesment of the life- cycle model by re-examining the empirical evidence for smoothing (1) within the year, (2)at year-to-year or business cycle frequencies, (3) over the working life, and (4) across the stages of life, such as working into retirement. We conclude that although unresolved challenges remain, the model has had many more successes than failures. We provide some calculations that show that where deviations from the model's predictions have been detected, they imply very small welfare costs for households. Moreover, economists are really just beginning systematic application of general theory models to microdata. Thus it is much too early to abandon the life-cycle model.life cycle model; consumption; saving

The Long-Run Cost of Job Loss as Measured by Consumption Changes

The costs of involuntary job loss are of substantial research and policy interest. We consider the measurement of the cost of job displacement with household expenditure data. With a Canadian panel survey of individuals who experienced a job separation, we compare the consumption growth of households that experienced a permanent layoff to a control group of households that experienced a temporary layoff with known recall date. Because the firms employing the latter group are providing insurance, these workers approximate a bench mark of full insurance against job loss shocks. We estimate that permanent layoffs experience an average consumption loss of between 4 and 10 percent. Older workers and workers with high job tenure have losses closer to the top of this range.Job Displacement, Consumption

Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell

We present theoretical and empirical results on consumption during an unemployment spell. The theory model extends the conventional intertemporal allocation model to take explicit account of the fact that households buy clothing and small durable goods (such as pillows and plates) that are indivisible, irreversible and non-collateralisable. The theoretical analysis suggests that liquidity constrained agents cut back on expenditures on these small durables during a low income spell much more than would be suggested by the income elasticities of these goods in ‘normal' times. Conversely, non-durable expenditures flows are much smoother than would be predicted in a model without durables. Thus it seems that agents can smooth utility flows even when total expenditure (on durables and non-durables) is quite volatile. The implications of this model are compared to the implications from three other widely used models of intertemporal allocation. In the empirical section, we exploit the information in a new Canadian panel survey of 20,000 workers who separated from a job in 1993 or 1995. As well as conventional survey information, this survey includes expenditure and asset information. Administrative data from several sources are linked to this panel to provide a detailed picture of the circumstances of households in which one member is unemployed. We estimate a joint total expenditure and demand system and test whether either the level of total expenditure or the structure of demand are sensitive to differences in the Unemployment Insurance benefit rate. We find that they are for households who have no liquid assets. Of the models that we consider, only the intertemporal allocation model proposed in this paper is consistent with this finding.

The Long-Run Cost of Job Loss as Measured by Consumption Changes

The costs of involutary job loss are of substantial research and policy interest. We consider the measurement of the cost of job displacement with household expenditure data. With a Canadian panel survey of individuals who experienced a job separation, we compare the consumption growth of households that experienced a permanent layoff to a control group of households that experienced a temporary layoff with known recall date. Because the firms employing the latter group are providing insurance, these workers approximate a bench mark of full insurance against job loss shocks. We estimate that permanent layoffs experience an average consumption loss of between 4 and 10 percent. Older workers and workers with high job tenure have losses closer to the top of this range.Job Displacement, Consumption

INCOME AND OUTCOMES - A STRUCTURAL MODEL OF INTRAHOUSEHOLD ALLOCATION

There is evidence from several sources that one cannot treat many-person households as a single decision maker. If this is the case, then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household. We develop a method of identifying how ''incomes affect outcomes'' given conventional family expenditure data. The basic assumption we make is that household decision processes lead to efficient outcomes. We apply our method to a sample of Canadian couples with no children. We find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

Evaluation of Selected Chemical Processes for Production of Low-cost Silicon, Phase 3

Refinements of the design of the 50 MT/year Experimental Process System Development Unit were made and competitive bids were received from mechanical, electrical, and structural contractors. Bids on most of the equipment were received and cataloged. Emergency procedures were defined to counter a variety of contingencies disclosed in operations and safety reviews. Experimental work with an electrolytic cell for zinc chloride disclosed no significant increase in power efficiency by steps taken to increase electrolyte circulation. On the basis of materials compatibility and permeability tests, 310 stainless steel was chosen for the shell of the fluidized-bed reactor and SiC-coated graphite for the liner

Evaluation of selected chemical processes for production of low-cost silicon, phases 1 and 2

A miniplant, consisting of a 5 cm-diameter fluidized-bed reactor and associated equipment was used to study the deposition parameters, temperature, reactant composition, seed particle size, bed depth, reactant throughput, and methods of reactant introduction. It was confirmed that the permissible range of fluidized-bed temperature was limited at the lower end by zinc condensation (918 C) and at higher temperatures by rapidly decreasing conversion efficiency. Use of a graded bed temperature was shown to increase the conversion efficiency over that obtained in an isothermal bed. Other aspects of the process such as the condensation and fused-salt electrolysis of the ZnCl2 by-product for recycle of zinc and chlorine were studied to provide information required for design of a 50 MT/year experimental facility. In view of the favorable technical and economic indications obtained, it was recommended that construction and operation of the 50 MT/year experimental facility be implemented

Asking Consumption Questions in General Purpose Surveys

In many research areas it is desirable to have information on household total expenditure ("consumption"). We draw evidence from several sources on the usefulness of recall consumption questions. We conclude that valid information can be collected by adding specific recall questions to general purpose surveys, and provide recommendations on how to do so.consumption, expenditures, surveys