Research Economic Seminar: Job insecurity, savings and portfolio choices – an Italian experiment

Job insecurity has consequences outside of the labour market. Using the 2012 Fornero reform as a natural experiment, we show that greater insecurity on the labour market increases precautionary savings. Provided that household income remained constant, this increase in precautionary savings translates mechanically into a reduction in consumption. However, the job-insecurity elasticity of consumption depends on the type of goods and services considered: the more essential the good or the service, the lower is the elasticity (e.g. food expenditures). Our results also suggest that financial constraints moderate the rise in precautionary savings. Last, we show that workers with a greater labour income risk decide to reduce their exposure to financial risk by adopting safer portfolio assets.