Consumption smoothing in the working-class households of interwar Japan

TL;DR

This paper examines how working-class households in interwar Japan managed income shocks, finding limited ability to fully smooth consumption but evidence of specific risk-coping strategies like savings, borrowing, and labor adjustments.

Contribution

It provides new empirical evidence on consumption smoothing and risk-coping mechanisms in early 20th-century Japanese working-class households.

Findings

Households could not fully smooth consumption during income shocks.

Savings institutions helped mitigate household vulnerabilities.

Borrowing and labor adjustments served as coping strategies.

Abstract

I analyze factory worker households in the early 1920s in Osaka to examine idiosyncratic income shocks and consumption. Using the household-level monthly panel dataset, I find that while households could not fully cope with idiosyncratic income shocks at that time, they mitigated fluctuations in indispensable consumption during economic hardship. In terms of risk-coping mechanisms, I find suggestive evidence that savings institutions helped mitigate vulnerabilities and that both using borrowing institutions and adjusting labor supply served as risk-coping strategies among households with less savings.