Thomas F. Crossley and Martin Browning
Abstract
The costs of involuntary job loss are an object of substantial research and policy interest. We consider the measurement of the costs of job displacement with household expenditure data. A life cycle model is used to exposit potential difficulties in inferring changes in the marginal utility of wealth from changes in expenditures. However, we argue that studies based on earnings or wages suffer from similar problems. We suggest a method involving the construction of comparison groups whereby some of the difficulties in interpreting expenditures changes may be overcome via a difference-in-difference strategy. In the empirical portion of the paper, we use a relatively new survey of unemployed individuals to examine how a job loss impacts on the level household expenditures over a two year period. Survey reports of expenditure are undoubtedly noisy, so a simple measurement error model and associated specification test are presented. We compare expenditure changes with other measures of the costs of job displacement.