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Unemployment risk and over-indebtedness: A micro-econometric perspective. National Bank of Belgium Working Paper No. 294

Du Caju, Philip and Rycx, Francois and Ilan, Tojerow (2016) Unemployment risk and over-indebtedness: A micro-econometric perspective. National Bank of Belgium Working Paper No. 294. [Working Paper]

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    Abstract

    We study how unemployment effects the over-indebtedness of households using the new European Household Finance and Consumption Survey (HFCS). First, we assess the role of different labor market statuses (i.e. employed, unemployed, disabled, retired, etc.) and other household characteristics (i.e. demographics, housing status, household wealth and income, etc.) to determine the likelihood of over-indebtedness. We explore these relationships both at the Euro area level and through country-specific regressions. This approach captures country-specific institutional effects concerning all the different factors which can explain household indebtedness in its most severe form. We also examine the role that each country’s legal and economic institutions play in explaining these differences. The results of the regressions across all countries show that the odds of being over-indebted are much higher in households where the reference person is unemployed. These odds ratios remain fairly stable across different over-indebtedness indicators and specifications. Interestingly, we find similar results for secured debt only. Turning to country specific results, the role of unemployment varies widely across countries. In Spain, France or Portugal, for example, the odds ratio for the unemployed group is just below 2, whereas in Austria, Belgium, or Italy the odds ratio is higher than 4. Secondly, we situate the analysis in a macro-micro frame to identify households and countries that are especially vulnerable to adverse macroeconomic shocks in the labor market. For the Euro area, we find that the percentage of households plagued by over-indebtedness increased by more than 10%, suggesting that another unemployment shock could have a major impact on the financial solvency of Euro area households. Finally, the impact of this shock on single-headed households is much higher than on couple-headed ones.

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    Item Type: Working Paper
    Uncontrolled Keywords: Household finance, Over-indebtedness, Financial Fragility, Unemployment, Labor market status, HFCS
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > employment/labour market
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 12 Sep 2019 10:56
    Number of Pages: 65
    Last Modified: 13 Dec 2019 12:49
    URI: http://aei.pitt.edu/id/eprint/97437

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