Measuring the Response of the Private Safety Net to Job Loss

Kathryn A. Edwards, University of Wisconsin-Madison

The private safety net is not well documented in the economics literature. This is partly due to the wide range of financial and in-kind transfers that comprise the private safety net and the difficulty in identifying these transfers in existing data sets. Yet, the private safety net could play an important role in consumption smoothing, alter the incentives to accumulate precautionary savings, influence labor force participation, and change the take up rate and effectiveness of the public safety net. In this paper, I use longitudinal data from the Panel Study of Income Dynamics (PSID) to examine one specific form of the private safety net in one circumstance---the response of cash transfers from family members after a job loss. The results help establish the existence of a safety net, and begin the characterization of how sensitive it is to the size of the income shock.