Job Loss, Unemployment Insurance, and Consumption

Unemployment Insurance (UI) comprises the main public source of income support for those who experience job displacement. Despite a long literature estimating the incentive effects of UI benefits on job search efforts and unemployment duration, evidence on the consumption-smoothing benefits of UI is more limited. An updated estimate can inform debates over the optimal generosity of UI by providing a better understanding of the role of UI over the business cycle, its effects during the Great Recession, and the interaction between UI and other public and private sources of consumption smoothing.

Economist Erin Bronchetti will use data from the Panel Study of Income Dynamics, the Health and Retirement Study, and the Consumer Expenditure Survey to examine the consumption-smoothing effects of UI over three decades. She will also study the public sources of consumption smoothing for the unemployed, including food stamps, cash assistance, the EITC, Medicaid, and SSI, accounting for cross-program eligibility rules. The interaction of UI with private sources of consumption smoothing, like private wealth or spousal labor income, will be considered as well. Finally, she will examine how the Great Recession affected the way displaced workers and their families were able to offset consumption losses associated with job displacement, and the importance of UI in helping households do so.