Impact of Occupational Unemployment Risk on Household Spending 
If workers face greater likelihood of unemployment that lowers expected future income, will they save more today? This paper looks at the expenditure response of workers to the change in unemployment risk measured at the occupational level. To examine this response, the authors use two household-level data sets, the Panel Study of Income Dynamics (PSID) and the Consumption Expenditure Survey (CEX). They find that occupational unemployment risk does not have a large impact on consumption expenditure.
Key Findings
- In the PSID, the authors find a positive significant association between annual income growth and spending growth.
- In the CEX, income growth does not appear to have a significant impact on spending growth.
- In both the PSID and CEX, occupational unemployment risk does not have a significant impact on spending. This finding holds true across all four categories the authors examine: grocery spending, restaurant spending, recreation spending, and discretionary spending.
- However, the authors cannot rule out a limited effect, because despite looking at multiple data sources and spending categories, they do not obtain narrow confidence intervals.
- The authors also find no evidence of a connection between occupational unemployment risk and household spending during the Great Recession, when some occupations had large unemployment increases.
Implications
During recessions, individuals are unlikely to make very large changes to their consumption in response to a rise in unemployment risk in their occupation. Also, individuals may gauge unemployment risk on aggregate unemployment or on their own personal circumstances instead of occupational factors, and this is not accurately reflected in occupational unemployment information. Furthermore, it’s possible that individuals may pay attention to occupational unemployment risk only in extremely specific scenarios.
Abstract
The life-cycle consumption and permanent income hypotheses predict that if workers face greater likelihood of unemployment in the future that lowers expected future income, they will save more today. In this paper, we test this hypothesis by looking at the expenditure response of workers to the change in unemployment risk measured at the occupational level. We find that occupational unemployment risk does not have a large impact on consumption expenditure. However, despite investigating multiple forms of occupational unemployment risk for multiple expenditure categories in two expenditure surveys (PSID, CEX), we do not obtain narrow confidence intervals for our estimates, so there remains a possibility of a limited impact.