Household adjustment to unemployment

Sammanfattning: This thesis consists of three self-contained studies on labour economics.Is the dramatic increase in the number of social assistance (SA) recipients in Sweden during the 1990s,in part, due to an increase in the propensity to receive SA? I investigate this question in essay I andfind no evidence of a general increase in the mentioned propensity although some behaviouralchanges seem to have occurred. First, I find evidence that the recipients may be subjected to tougherjudgement criteria in 1995 compared to 1990, which could, mask a possible increase in the studiedpropensity. Second, the propensity to become a SA recipient has increased among people withuniversity education. Third, the propensity to receive SA among young people seems to be lower in1995 than in 1990 but this may be due to a tougher attitude shown by the authorities that is particularlyaffecting this group.Essay II examines the added worker effect (AWE) in the presence of unemployment benefits in theshort run. The results suggest that Swedish women, but not men, increase their earnings in response totheir spouses' unemployment. Further, the woman's response seems to be directly related to thehusband's loss of earnings from unemployment, since it increases with the duration of the husband'sunemployment and decreases with the amount of unemployment benefit that the husband receives.However, although a significant AWE can be documented, its economic significance is relativelysmall in the short run. Finally, the households' ability to smooth their earnings by other resources(such as previous savings) seems to reduce the spouses' earning response.In essay III, I analyse if liquid assets are used to smooth variations in consumption that results fromunemployment. My findings indicate that households do use liquid assets for this purpose. First, I findthat among working households, those facing a higher risk of becoming unemployed, on average,accumulate more assets. Second, households utilise previously accumulated assets during spells ofunemployment. Third, unemployment benefits (UB) crowd out the utilisation of assets, whichdemonstrates that assets are used as a consumption-smoothing device along with unemploymentbenefits during unemployment. Also, increases in UB generosity reduce the amount of assetsaccumulated, which implies that UB have important effects on people's saving behaviour. Finally, Ifind that both asset accumulation and asset use during unemployment are lower among couplescompared to singles and these differences increase further if the spouse is working.