Job Displacement Insurance and (the Lack of) Consumption-Smoothing

We study the spending profile of workers who experience both a positive transitory income shock (lump-sum severance pay) and negative permanent (layoff). Using de-identified expenditure employment data from Brazil, we show that increase at layoff by 35 percent despite experiencing 14 long-term loss. find high sensitivity to cash-on-hand across consumption categories for several sources variation, including predictable drops. A model with present-biased can rationalize our findings, highlights importance timing benefit disbursement consumption-smoothing gains job displacement insurance policies. (JEL D12, G51, J65, J63, O12)