Household Income Shocks Research Articles

Household Income Growth and Firm Valuation: Evidence from REITs

This article investigates the relationship between a firm’s market valuation and the household income growth in its asset locations. Using income tax data from the Internal Revenue Service and individual establishment information of U.S. equity real estate investment trusts (REITs) from 2000 to 2019, the article constructs an aggregated measure of household income growth for each firm based on its asset locations in various metropolitan areas. The paper adopts an identification strategy that links household income shocks to firm valuation. The results indicate that firm-specific household income growth positively affects firm value (measured as firm Q) and shareholder value (measured as market-to-book equity ratio). These findings suggest that local residents’ income is crucial in portfolio construction and operation.

Projecting the Impact of the COVID-19 Pandemic on Child Marriage

PurposeThe study projects the potential impact of COVID-19 on child marriage in the five countries in which the burden of child marriage is the largest: Bangladesh, Brazil, Ethiopia, India, and Nigeria. MethodsThe projected impact of the pandemic on child marriage is based on a Markov model. A review of empirical and theoretical literature informed construction and parameter estimates of five pathways through which we expect an elevated marriage hazard: death of a parent, interruption of education, pregnancy risk, household income shocks, and reduced access to programs and services. Models are produced for an unmitigated scenario and a mitigated scenario in which effective interventions are applied to reduce the impact. ResultsThe total number of excess child marriages in these five countries could range from 3.5 million to 4.9 million in the unmitigated scenario and from 1.8 million to 2.7 million in the mitigated scenario. The elevated risk compared with the baseline projection would continue until 2035. ConclusionsThese projections represent the impact in five countries that account for 50% of child marriages globally, implying that if similar patterns hold, we might expect the number of excess child marriages due to the pandemic to reach 7 million to 10 million globally. These estimates are necessarily subject to high levels of uncertainty because of limited evidence on the impacts in relation to child marriage and for parameter estimates. It will likely take years to understand the full impact of the pandemic. Despite these limitations, the potential for harm is unquestionably large.

Intergenerational transmission of lockdown consequences: prognosis of the longer-run persistence of COVID-19 in Latin America

The shock on human capital caused by COVID-19 is likely to have long lasting consequences, especially for children of low-educated families. Applying a counterfactual exercise we project the effects of school closures and other lockdown policies on the intergenerational persistence of education in 17 Latin American countries. First, we retrieve detailed information on school lockdowns and on the policies enacted to support education from home in each country. Then, we use these information to estimate the potential impact of the pandemic on schooling, high school completion, and intergenerational associations. In addition, we account for educational disruptions related to household income shocks. Our findings show that, despite that mitigation policies were able to partly reduce instructional losses in some countries, the educational attainment of the most vulnerable could be seriously affected. In particular, the likelihood of children from low educated families to attain a secondary schooling degree could fall substantially.

Increasing Trends in Physical and Mental Health Problems among US Workers in Different Job Sectors During the COVID-19 Pandemic

Background: The COVID-19 pandemic has had a substantial adverse impact on workers’ employment and physical and mental health. However, job losses, job-related household income shocks, and their related physical and mental health problems have not been well-documented. Using temporal, nationally representative data, this study examines inequalities in job-related income losses and their resultant health impact among US workers aged 18-64 years in different job sectors during the pandemic. Methods: Using April, August, and December 2020 rounds of the US Census Bureau’s Household Pulse Survey (N=56,156, 82,173, and 51,500), job-related income losses among workers in various job sectors and associated impacts on self-assessed health, depression, anxiety, worry, and lack of interest were analyzed by multivariable logistic regression. Results: In December 2020, 64.0% of self-employed and 66.3% of unemployed adults reported that they or someone in their household experienced a loss of employment income since the start of the pandemic in March 2020. This percentage was the lowest for the public sector (35.2%) and non-profit-sector (45.0%) workers. Job/income losses increased by 26% between April and December for workers in the private and non-profit sectors. Prevalence of fair/poor overall health, serious depression, serious anxiety, serious worry, and serious lack of interest increased substantially during the pandemic for workers in all sectors, with the self-employed, those in the family business, and the unemployed experiencing the highest risk and those in the government/public and non-profit sectors experiencing the lowest risk of poor physical and mental health. Workers in all sectors reporting job-related income losses experienced approximately 2-to-4-fold higher odds of poor overall health, serious depression, serious anxiety, serious worry, and serious lack of interest, compared to public-sector workers with no job/income losses, controlling for covariates. Conclusion and Implications for Translation: Job-related income losses and prevalence of poor overall health and mental health among workers in all sectors increased markedly during the pandemic, with the self-employed, family business, and unemployed workers being especially vulnerable to poor health, depression, anxiety, and stress. Copyright © 2021 Singh, et al. Published by Global Health and Education Projects, Inc. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY 4.0) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work, first published in this journal, is properly cited.

Household Income Shocks, Demand for Deposits, and Real Activities

Household Income Shocks, Demand for Deposits, and Real Activities

Intergenerational Transmission of Lockdown Consequences: Prognosis of the Longer-Run Persistence of COVID-19 in Latin America

The shock on human capital caused by COVID-19 is likely to have long lasting consequences, especially for children of low-educated families. Applying a counterfactual exercise we project the effects of school closures and other lockdown policies on the intergenerational persistence of education in 17 Latin American countries. First, we retrieve detailed information on school lockdowns and on the policies enacted to support education from home in each country. Then, we use these information to estimate the potential impact of the pandemic on schooling, high school completion, and intergenerational associations. In addition, we account for educational disruptions related to household income shocks. Our findings show that, despite that mitigation policies were able to partly reduce instructional losses in some countries, the educational attainment of the most vulnerable could be seriously affected. In particular, the likelihood of children from low educated families to attain a secondary schooling degree could fall substantially.

How do state policies shape experiences of household income shocks and mental health during the COVID-19 pandemic?

The tremendous job loss and wage cuts during the COVID-19 pandemic raises concerns about the mental health of the population. The impacts of income shocks on mental health may differ across U.S. states during the pandemic, as states have different policy contexts that likely influence mental health. The present study uses survey data from the Census Bureau's Household Pulse Survey (April-July 2020) to examine whether mental health outcomes vary across U.S. states and to what extent specific state-level contexts moderate the associations between household income shocks and depression (n = 582,440) and anxiety (n = 582,796). We find that the prevalence of depression and anxiety differs across states by household income shock status. For individuals, living in a state with supportive social policies - primarily those related to Medicaid, unemployment insurance, and suspended utility shut offs during the pandemic - weakens the association between household income shocks and mental health. Findings suggest that the lack of a strong federal response to the pandemic alongside the devolution of federal power to states over the past 40 years contributes to inequalities in mental health across states. We provide insight about how specific existing and emergency-related policies can reduce adverse mental health consequences of household income shocks.

Digital Financial Inclusion and Consumption Smoothing in China

AbstractIn this paper, we investigate the effect of digital financial inclusion (DFI) on household consumption smoothing in China. We use four waves of the biennial China Family Panel Studies from 2010 to 2016, during which time DFI has significantly developed alongside financial technology across China. We split household income shocks into permanent and transitory components, and evaluate if DFI may help households to buffer against these shocks. We find that households are not able to insure against permanent shocks to income, but they can smooth approximately 70 percent of transitory shocks to income. We also find that DFI has diminished households’ ability to insure against transitory income shocks. This is partly because online purchase may lead to the oversensitivity of consumption to income. In addition, we find that contrary to DFI, traditional financial sector development contributes to better household consumption smoothing against transitory income shocks.

Impact of Economic Situation on Availability of Secondary Education in Indonesia

Introduction. School transition is important as a benchmark for education progress in many developing countries, including Indonesia. Moreover, the school transition has been identified as a crucial turning point in school progress in Indonesia. The purpose of the article is to analyze the role of income, gender against the school transition in Indonesia. Materials and Methods. Methods in this research were conducted in two phases, fixed effect and conditional logit. The data used are from the Indonesian Family Life Survey and to capture the occurrence of several events in Indonesia with the risk associated with economic crisis in Indonesia against school transition. Results. A sharp permanent income decrease shock will have a larger effect upon parental investment than one realized later in the child’s lifetime and the effect of permanent household income shocks is significant and decreases in older childhood, as predicted by the permanent income hypothesis. When household income is faced with shocks constraint conditions of loans and credit market imperfections, girls tend to be used as a coping strategy to support private consumption in doing consumption smoothing, especially transition from primary to junior secondary education. Discussion and Conclusion. Permanent income have long-term consequences of the decision-making process in the school transition. Girls experienced an increase in continuing education, especially at higher levels. Furthermore, when household income is faced with shocks constraint conditions of loans and credit market imperfections, girls tend to be used as a coping strategy to support private consumption in doing consumption smoothing. Keywords: complete secondary education, role of income, gender, fixed effect, conditional logit, school transition

Empirically based analysis of households coping with unexpected shocks in the central Himalayas

ABSTRACTClimate change may significantly impact the large number of households in developing countries depending on agricultural production, not least through changes in the frequency and/or magnitude of climatic hazards resulting in household income shocks. This paper analyses rural households’ responses to past experiences of and future expectations to substantial and unexpected negative and positive agricultural income shocks. Empirical data is derived from an environmentally-augmented structured household (n = 112) survey in the high mountains of central Nepal. Multinomial logit regression, using data on rural household demographics, assets (agricultural land, livestock), value of other assets such as furniture, bicycles, and agricultural implements, and income sources showed that household coping choices are determined by opportunities to generate cash. We argue that public policies should enhance the ability of rural household to generate cash income, including through environmental products.

Debt and the Response to Household Income Shocks: Validation and Application of Linked Financial Account Data

The increasing availability of data derived from linked consumer financial accounts has the potential to dramatically expand the potential for research. Examining the most comprehensive existing se...

Heterogeneous Preferences and Risk Sharing at Household Level in China

This paper investigates the degree of risk sharing across households in China with heterogeneous risk and time preferences from the late 1990s to early 2010s. Standard tests assume homogeneous preferences across households, which may bias the true risk sharing degree if, in reality, preferences correlate with variations of household income. We use household data from the China Health and Nutrition Survey (CHNS) and China Family Panel Studies (CFPS) to show that, in China, the incomes of less risk-averse and less patient households correlate more positively with the aggregate risk. The standard test, which ignores this correlation, shows about 30% of household income shocks pass through to household consumption. However, this number reduces to 3% and becomes insignificant when preferences heterogeneity is accounted for. By comparing this result with that of the US, we find the degree of risk sharing across households in China is similar to that in the US. We argue that this improvement of risk sharing from the standard test to tests with preferences heterogeneity is due to the institutional changes and labour market reforms that took place during the mid-1990s and early 2000s. This gave individuals more freedom in their labour market choices, which makes preferences heterogeneity more relevant, as people can choose occupations more aligned with their preferences. We then use the Research Center on the Rural Economy (RCRE) Fixed Point Rural Household Survey data to provide empirical evidence of the effect of reforms on household risk sharing.

Income Shocks, Contraceptive Use, and Timing of Fertility

This paper examines the relationship between household income shocks and fertility decisions. Using panel data from Tanzania, we estimate the impact of agricultural shocks on pregnancy, births, and contraception use. We estimate individual level fixed effect models to account for potential correlation between unobservable household characteristics and both shocks and decisions on fertility and contraceptive use. The likelihood of pregnancies and childbirth are significantly lower for households that experience a crop shock. Furthermore, women significantly increase their contraception use in response to crop losses. We find little evidence that the response to crop loss depends on education or wealth levels. The increase in contraceptive use comes almost entirely from traditional contraceptive methods, such as abstinence, withdrawal, and the rhythm method. We argue that these changes in behavior are the result of deliberate decisions of the households rather than the shocks’ effects on other factors that influence fertility, such as women’s health status, the absence or migration of a spouse, the dissolution of partnerships, or the number of hours worked. We also show that, although traditional contraceptives have low overall efficacy, households with a strong incentive to postpone fertility are very effective at using them.

Debt and the Consumption Response to Household Income Shocks

This paper exploits a detailed new dataset with comprehensive panel nancial information on millions of American households to investigate the interaction between household balance sheets, income, and consumption during the Great Recession. In particular, I test whether consumption among households with higher levels of debt is more sensitive to a given change in income. I match households to their employers and use shocks to these employers to derive persistent and unanticipated changes in household income. I nd that highly-indebted households are more sensitive to these income uctuations and that a one standard deviation increase in debt-to-asset ratios increases the elasticity of consumption by approximately 25%. I employ household savings and credit availability data to show that these results are driven largely by borrowing and liquidity constraints. These estimates suggest that the drop in consumption during the 2007-2009 recession was approximately 20% greater than what would have been seen with the household balance sheet positions in 1983.

Dynamics of Household Assets and Income Shocks in the Long-run Process of Economic Development: The Case of Rural Pakistan

This paper analyzes the dynamics of assets held by low-income households facing various types of income shocks in pre-independence and post-independence Pakistan. Focusing on the province of Khyber Pakhtunkhwa (formerly known as the North–West Frontier Province or NWFP), the paper first investigates long-run data at the district level beginning 1902. Results show that the population of livestock, the major asset of rural households, experienced a persistent decline after crop shocks due to droughts, but did not respond much to the Great Depression. In the post-independence period, crop agriculture continued to be vulnerable to natural disasters, although less substantially so, while the response of livestock to such shocks was indiscernible from district-level data. To examine microeconomic mechanisms underlying such asset dynamics, I analyze a panel dataset collected from approximately 300 households in three villages in the NWFP during the late 1990s. Results show that the dynamics of household landholding and livestock are associated with a single long-run equilibrium. When human capital is included, the dynamics curve changes its shape but this is not sufficiently nonlinear to produce statistically significant multiple equilibriums. The size of livestock holding was reduced in all villages hit by macroeconomic stagnation, while land depletion was reported only in a village with inferior access to markets. The patterns of asset dynamics established from historical and contemporary analyses are consistent with limited but improving access to consumption smoothing measures in the study region over the century.

Income shocks and gender gaps in education: Evidence from Uganda

This paper uses exogenous variation in rainfall across districts in Uganda to estimate the causal effects of household income shocks on children's enrollment and academic performance conditional on gender. I find negative deviations in rainfall from the long-term mean to have negative and highly significant effects on female enrollment in primary schools and the effect grows stronger for older girls. I find no effect of rainfall variation on the enrollment of boys and young girls. Moreover, I find that when schooling is free of charge and both marginal boys and girls are enrolled, a negative income shock has an adverse effect on the test scores of female students while boys are not affected. The results imply that households respond to income shocks by varying the amount of schooling and resources provided to girls while boys are to a large extent sheltered — a finding consistent with a model where parents' values of child labor differ across sexes.

The Effects of Household Income Volatility on Divorce

AbstractWe extend the literature on the effects of earnings shocks on divorce by identifying separately the effects of transitory and permanent household income shocks and by allowing the shocks to have asymmetric effects across education and racial groups. The econometric evidence suggests negative (positive) transitory household income shocks increase (decrease) the probability of divorce, while there is only weak evidence that positive (negative) permanent household income shocks raise (lower) the probability of divorce. Some differences in the effects of household income shocks on divorce propensities arise for subsamples selected by education and race.

LINKING POVERTY AND INCOME SHOCKS TO RISKY SEXUAL BEHAVIOUR: EVIDENCE FROM A PANEL STUDY OF YOUNG ADULTS IN CAPE TOWN

Is there a link between household income and income stress, and risky sexual behaviour of young people? Anecdotal and qualitative evidence suggests this may be the case, but there is little quantitative research measuring this relationship. We use two waves of new data from the Cape Area Panel Study to investigate this link for 2,993 African and coloured youths aged 14 to 22 in 2002. In the process, we discuss one type of research design that could allow for a causal interpretation of the effect of income poverty on HIV risk. This design plausibly separates out the effect of income stress from the effect of living in a poor household by comparing behaviours across households with and without negative economic shocks, conditional on baseline income. Our results indicate that females in poorer households are more likely to be sexually active in 2002 and more likely to sexually debut by 2005. In addition, girls in households experiencing negative economic shocks are more likely to reduce condom use between 2002 and 2005. However, they are less likely to have multiple partners in 2002 or have transitioned to multiple partners by 2005. Males who experienced a negative shock are more likely to have multiple partners. Despite the tight research design for assessing shocks, the findings on the impacts of shocks do not generate clear recommendations for policy. There appears to be no systematic difference in condom use at last sex by household income levels or income shocks.

Child labor and agricultural shocks

This paper examines the relationship between household income shocks and child labor. In particular, we investigate the extent to which transitory income shocks lead to increases in child labor and whether household asset holdings mitigate the effects of these shocks. Using data from a household panel survey in Tanzania, we find that both relationships are significant. We investigate mechanisms that could account for these results, including buffer stocks and borrowing.

The Persistence of Income Shocks: Evidence from Rural Indonesia

AbstractThis paper estimates the persistence of transient income shocks to farm households in rural Indonesia. Persistence is defined as the elasticity of a household's 1997 household per capita income with respect to its 1993 per capita income, controlling for time‐invariant characteristics of the household. Local rainfall levels are used as an exogenous source of transitory variation in 1993 income. Four main conclusions emerge. First, roughly 30% of household income shocks remain after four years. Second, the persistence of negative and positive shocks is approximately equal; if anything, positive shocks last longer. Third, neither positive nor negative income shocks disproportionately affect poor households. Finally, measurement error in income and unobserved household heterogeneity are important sources of bias. These findings cast doubt on common arguments advocating public intervention to stabilize or redistribute income, and suggest that anti‐poverty policy should address more permanent causes of household poverty.