Consumption Heterogeneity by Occupation: Understanding the Impact of Occupation on Personal Consumption during the COVID-19 Pandemic
Policies that were implemented to limit the spread of COVID-19 did not affect all occupations equally during the first part of the pandemic. Workers who could perform their jobs virtually from home or who had jobs that were deemed essential experienced little risk of unemployment compared with workers whose jobs could not be performed from home and were considered nonessential. To help mitigate the economic fallout from the lockdown measures and other policy interventions, the U.S. government passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included expanded unemployment insurance benefits and stimulus payments to households. The authors use data on high-frequency credit/debit card spending to investigate how consumption spending varied by occupation during the period from early March through the end of August 2020. In particular, they analyze whether workers in occupations associated with higher risk of unemployment due to the lockdowns demonstrated relatively lower consumption spending and whether the CARES Act may have influenced their spending behavior. In addition, the authors introduce a new metric, based on job characteristics, to predict which occupations likely faced higher rates of unemployment in the observed months of the pandemic.
- Occupational unemployment risk is positively associated with relative consumption spending in the period of the pandemic that preceded the CARES Act (pre-stimulus period), implying that workers at high risk of losing their jobs were spending relatively more or at least not spending less compared with workers in less risky occupations.
- Occupational unemployment risk appears to have driven lower relative consumption in the observed post-stimulus period of the pandemic.
- Occupational unemployment risk had an increasingly negative effect on relative consumption spending month by month as the pandemic continued.
- In the pre-stimulus period, there was no consistent trend in the effect of unemployment risk on consumption spending disaggregated by essential and nonessential spending; the effect was positive for groceries and negative for utilities, recreation, and dining. In the post-stimulus period, unemployment risk had a large negative effect on relative spending across all categories.
- Workers with jobs that could not be done from home, could not be performed while abiding by social-distancing policies, and tended to be less “essential”—meaning they could be more easily shut down without having a large immediate impact on society—were more likely to become unemployed during the early part of the pandemic.
The authors’ finding that in the pre-stimulus period, workers in occupations with higher unemployment risk were spending relatively more or at least not spending less than their less risky counterparts runs contrary to the prediction of a standard economic model of consumption indicating that expectation of future unemployment should lead to a reduction in consumption spending in the present. However, this could be because the workers in riskier occupations were anticipating stimulus payments and unemployment benefits, which in many cases exceeded workers’ regular salaries. Or, perhaps these workers simply underestimated their occupation’s unemployment risk.
Regarding the conclusion that occupational unemployment risk appeared to drive lower relative consumption in the post-stimulus period, it is possible that workers’ income was changing during this period as government benefits were largely reduced, thereby necessitating a cut in spending. Or, workers’ perceptions of the unemployment risk could have evolved as the pandemic progressed; when high unemployment persisted several months into the pandemic, workers may have revised their expectations of future job loss and reduced their spending.
The finding that as each month passed, the relationship between occupational unemployment risk and relative consumption spending became progressively more negative fits the authors’ broader theory that as hopes of an additional stimulus package receded and the likelihood of longer-term unemployment risk rose, workers facing greater occupational unemployment risk were likely to re-evaluate their consumption plans.
This paper exploits the variation in the unemployment rate of different occupations in the first part of the COVID-19 pandemic to analyze the response of consumption spending to unemployment risk. We find that earlier in the pandemic, higher unemployment risk did not reduce relative spending. However, as the pandemic proceeded, higher unemployment risk reduced relative spending. This pattern held across both essential and nonessential spending categories. We find that “high-risk” occupations had three common characteristics: lower ability to be performed from home, higher physical proximity on the job, and a nonessential nature.