Can Secondary Jobs Smooth Consumption? Evidence from Unanticipated Wage Arrears

This paper studies second jobs as self-insurance and consumption-smoothing devices for liquidity-constrained workers who face unanticipated wage arrears. Unlike the previous consumption-smoothing literature, emphasis is given to labor market shocks in emerging economies and to a new empirical strategy: labor supply responses are identified through unanticipated changes in wage payment and repayment behavior of Ukrainian firms. Unique longitudinal data on paid and outstanding salaries show that second jobs swiftly follow the life cycle of main job shocks so that individuals abandon their coping activity after repayment. Second jobs enable households to smooth consumption against 70% of income shocks.