Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82529
Authors: 
Kolsrud, Jonas
Year of Publication: 
2011
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2011:11
Abstract: 
A vast literature has investigated how unemployment insurance (UI) affects labor supply. However, the distorting effect of UI on labor supply is to a large extent determined by how well UI benefits smooth private consumption, which in turn depends on the resources available to the unemployed. To determine UI's consumption-smoothing effect, I exploit a kink in the deterministic relationship between previous earnings and unemployment benefits. The randomized assignment of benefits created by the kink allows me to identify how UI affect the use of private wealth to finance consumption during unemployment spells. Using Swedish data for 2000 - 2002 I find that a large share of the unemployed actually can consume at the same level as they did prior to the layoff. I also find that loans are of great importance to consumption smoothing as more than half the sample lacks buffer savings. This is further emphasized for different subpopulations. Women, couples, and older individuals holds significantly larger liquid wealth than men and young singles.
Subjects: 
saving
wealth
unemployment benefit
unemployment
consumption smoothing
JEL: 
D91
J64
J65
Document Type: 
Working Paper

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