Key Findings Details
Consumption Smoothing During the Financial Crisis: The Effect of Unemployment on Household Spending
Michael Hurd and Susann Rohwedder
- We found that at unemployment, total monthly spending declined rapidly from the $3,560 it averaged during employment to about $2,980, a decline of about 17 percent.
- Spending remained at that level until about 30 weeks of unemployment when it declined further to about $2,500, or around 70 percent of initial spending.
- Spending on big-ticket items and other, infrequently purchased items decreased more rapidly than high-frequency expenditures such as those on food.
- Income decreased much more rapidly than spending to about 37 percent of pre-unemployment levels where it remained unless the duration of the unemployment spell was very long. An implication is that some spending while unemployed was financed out of savings or accumulation of debt.
- At re-employment, income increased rapidly, much more rapidly than spending.
- An overall conclusion is that households were able to maintain spending following unemployment at a fairly high percentage of pre-unemployment spending provided the duration of unemployment was moderate.