Spending Cut When Job Threats Rise

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A new study provides important insights into American workers’ household budgets.

The study found that when workers sensed a growing likelihood they might lose their jobs, they quickly pared their spending on a large and diverse basket of discretionary consumer goods. These included both standard purchases and big-ticket items, from gardening supplies and vacations to cars and dishwashers.

The analysis was based on a survey of some 2,500 workers who were asked about their spending patterns and also asked to estimate their own chances of becoming unemployed over the coming year. The survey was conducted between 2009 and 2013, when the U.S. jobless rate at one point approached 10 percent.

Not surprisingly, fixed expenses such as the rent or monthly mortgage payment were not cut in the near term. But RAND researchers Michael Hurd and Susann Rohwedder estimated that each 10 percentage point rise in a worker’s perceived likelihood of losing his or her job over the next year resulted in about a 2 percent average reduction in spending, within a month, on that basket of discretionary purchases.

The researchers controlled for income, marital status, household size and other factors that influence spending.

Their study also identified specific budget items that were reduced significantly:
• Drinking and dining at bars, cafes and restaurants.
• Personal care products, such as shaving cream, the hair dresser, and moisturizing lotion.
• Clothing, and accessories such as shoes and watches.
• Entertainment, such as movies, sporting events, and concerts.

For workers who become unemployed or would just like to save more, this study provides some indication on how much their budgets could quickly be cut.

Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.