Precautionary Saving in Europe

The main aim of this paper is to find out whether European households show precautionary saving behaviour due to labour uncertainty. Motivated by the increased labour uncertainty during the Great Recession (2007-2009) and its aftermath, Carroll, Slacelek & Sommer (2012), as well as Mody, Ohnsorge & Sandri (2012) already showed the existence of precautionary saving following from labour uncertainty at a macro-economic level for respectively the US and OECD countries. My main results, which stem from applying various regression specifications, estimators and time samples, show that precautionary saving following from labour uncertainty was present between 1980 and 2009. However, I find evidence that the importance of precautionary saving due to labour uncertainty has diminished after 2009. Hence, I claim that the precautionary saving behaviour of European households following from labour uncertainty might not be as influential as indicated by Mody et al. (2012). With the help of a second dataset including a longer time period, I show that whether I measure precautionary saving or not depends on the variables, type of estimator and specific time sample I use. This casts doubts on general claims about aggregate precautionary household saving that have been made in previous studies.