Labour market institutions and household consumption insurance within OECD countries

by Anna Lo Prete; CeRP WP N. 150/15; Published in The World Economy 39:6 (2016), 755-771

September 2015

This paper tests empirically whether the effect of idiosyncratic income shocks on aggregate consumption depends on institutional features of national labour markets. The results show that, in a sample of 15 OECD countries, institutional heterogeneity is a significant determinant of the response of household consumption to country-specific income shocks.
This is consistent with the idea that institutionally-provided social insurance may help increase income stability when people differ in their ability to access financial markets and smooth consumption fluctuations.

JEL codes: E2; F4; J08.
Keywords: labour market institutions; household consumption; risk sharing.


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