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The Wealth of the unemployed

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  • Jonathan Gruber
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    Abstract

    Many studies have investigated the adequacy of unemployment insurance (UI) benefits as a form of income replacement, but few have looked at other resources with which the unemployed can finance their unemployment spells. This paper focuses on one form of resources, own wealth holdings. The author finds that the median worker's financial assets can cover roughly two-thirds of the income loss from an unemployment spell. Wealth holdings vary tremendously, however, and almost one-third of workers are unable to replace even 10% of their income loss. Moreover, predicted wealth holdings decline precipitously with realized unemployment durations, both absolutely and (especially) relative to actual income loss. This finding, together with the finding that individuals who are eligible for more generous UI draw down their wealth more slowly than do others during unemployment spells, suggests that UI benefit adequacy could be increased if the benefits were targeted to those with longer unemployment spells. (Author's abstract.)

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    Bibliographic Info

    Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

    Volume (Year): 55 (2001)
    Issue (Month): 1 (October)
    Pages: 79-94

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    Handle: RePEc:ilr:articl:v:55:y:2001:i:1:p:79-94

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    Cited by:
    1. Makoto Nakajima, 2011. "A quantitative analysis of unemployment benefit extensions," Working Papers 11-8, Federal Reserve Bank of Philadelphia.
    2. Mauro Roca, 2009. "Search in the Labor Market Under Imperfectly Insurable Income Risk," IMF Working Papers 09/188, International Monetary Fund.
    3. Zhan, Min & Sherraden, Michael, 2011. "Assets and liabilities, race/ethnicity, and children's college education," Children and Youth Services Review, Elsevier, vol. 33(11), pages 2168-2175.
    4. Koehne, Sebastian & Kuhn, Moritz, 2012. "Should unemployment insurance be asset-tested?," MPRA Paper 36973, University Library of Munich, Germany.
    5. Thomas F. Crossley & Hamish W. Low, 2004. "Borrowing Constraints, the Cost of Precautionary Saving, and Unemployment Insurance," Quantitative Studies in Economics and Population Research Reports 391, McMaster University.
    6. Raj Chetty, 2005. "Why do Unemployment Benefits Raise Unemployment Durations? Moral Hazard vs. Liquidity," NBER Working Papers 11760, National Bureau of Economic Research, Inc.
    7. Tali Regev, 2006. "Unemployment insurance and the uninsured," Working Paper Series 2006-48, Federal Reserve Bank of San Francisco.

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