The consumption response to unemployment : Evidence from French bank account data

The loss of a job results in a reduction in income, as unemployment benefits provide only partial compensation for the loss of wages. This study investigates the financial adaptations made by households in response to such circumstances. Do they draw on their savings to maintain their consumption level or are they forced to reduce their expenditures? This paper uses French high frequency bank account data to measure how spending responds to job loss. Our findings indicate that, in the first six months of unemployment, 36% of the income loss is offset by a reduction in spending, while the remainder is primarily compensated by a decrease in liquid savings. The longer the unemployment spell, the greater the reduction in spending. Only 5% of the income loss is offset by a reduction in spending one month after the job loss. However, this figure reaches 46% six months after the initial job loss. The response depends on the quantity of liquid assets held by households, while being less influenced by income.