Niklas Flamang, UC Berkeley
This project investigates how households’ consumption patterns evolve around income changes. In particular, to what extent do income declines result in purchases of cheaper, (presumably) lower-quality goods and to what extent is there a “shopping effort” margin that allows households to purchase the same bundle at lower prices. To answer these questions, I leverage information on exact purchases to construct household-level price indices. I find that households experiencing non-employment spells pay lower prices for identical goods, but that adjustments along the quality margin are more common. This suggests that the main margin of adjustment in shopping behavior in light of income losses is purchasing products of lower quality rather than purchasing identical goods at lower prices.