Who Bears the Cost of Recessions? The Importance of Household Balance Sheets

, University of 黑料传送门 Booth 

, University of 黑料传送门 Booth 

We review the literature on the effects of recessions across the income distribution, focusing on shocks to income, wealth, and consumption. One of the difficulties with the existing research is a lack of individual-level panel data on all of these outcomes. More specifically, the ideal data set would allow a researcher to sort households based on ex ante characteristics such as average income, and then track income, wealth, and consumption of individuals through the recession. We use zip code level data on the Great Recession as an imperfect proxy for the (non-existent) ideal data set. The preliminary results show that lowest income zip codes suffer the largest increase in unemployment, the biggest drop in housing wealth, and the largest decline in measures of consumption. The results are least conclusive on income shocks, but they suggest that the lowest income zip codes see larger losses in income with the exception of one group: the richest zip codes. However, the richest zip codes see the smallest drop in measures of consumption. Food stamps grow by much more in lower income zip codes. We believe that the evolution of household balance sheets is crucial to understanding these patterns. We cannot yet say much about the evolution of financial wealth in a zip code during the Great Recession.