The recent strength of the labour market and its impact on workers’ consumption

Abstract

Rationale Since the pandemic, the Spanish labour market has shown considerable strength, which has been conducive to a decline in the perceived probability of job loss among workers. This article evaluates the extent to which this may have had a positive impact on consumption (by reducing precautionary saving). Takeaways •The strength of the labour market and the rising share of permanent contracts have helped reduce workers’ perceived probability of job loss. This lowers precautionary saving and raises household spending levels •Uncertainty regarding future labour income has a particularly strong impact on spending on durable goods, and an albeit smaller impact on other non-essential expenditure. •The households whose spending on durables is most responsive to changes in uncertainty about future labour income are those that lack a minimum buffer of liquid assets to withstand a drop in income. This is observed most frequently among low-income and young households.