Consumption in the shadow of unemployment Articles uri icon

authors

  • CAMPOS, RODOLFO G.
  • REGGIO OJEDA, ILIANA GABRIELA

publication date

  • August 2015

start page

  • 39

end page

  • 54

volume

  • 78

international standard serial number (ISSN)

  • 0014-2921

electronic international standard serial number (EISSN)

  • 1873-572X

abstract

  • By how much do employed households reduce their consumption when the aggregate unemployment rate rises? In Spain during the Great Recession a one point increase in the unemployment rate was related to a strong reduction in household consumption of more than 0.7% per equivalent adult. This reduction is consistent with forward-looking agents responding to downward revisions of their expectations on future income growth rates: the shadow of unemployment. Using consumption panel data that include information on physical quantities we show that the drop in consumption expenditure was truly a reduction in quantities, and not a switch to cheaper alternatives.

keywords

  • consumption; unemployment; life-cycle models; spain; great recession