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Title: Job Displacement Insurance and (the Lack of) Consumption-Smoothing
We study the spending profile of workers who experience both a positive transitory income shock (lump-sum severance pay) and a negative permanent income shock (layoff). Using de-identified expenditure and employment data from Brazil, we show that workers increase spending at layoff by 35 percent despite experiencing a 14 percent long-term loss. We find high sensitivity of spending to cash-on-hand across consumption categories and for several sources of variation, including predictable income drops. A model with present-biased workers can rationalize our findings, and highlights the importance of the timing of benefit disbursement for the consumption-smoothing gains of job displacement insurance policies. (JEL D12, G51, J65, J63, O12)  more » « less
Award ID(s):
1757105
PAR ID:
10226145
Author(s) / Creator(s):
;
Date Published:
Journal Name:
American Economic Review
Volume:
111
Issue:
3
ISSN:
0002-8282
Page Range / eLocation ID:
899 to 942
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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