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How Income Changes During Unemployment: Evidence from Tax Return Data

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  • Laura Kawano
  • Sara LaLumia

Abstract

We use a panel of tax returns spanning 1999 to 2011 to provide evidence on household experiences during unemployment. A period of unemployment is associated with a 20 percent reduction in annual household wage earnings. Unemployment insurance (U.I.) compensates for half of lost wages. Households also partially compensate using a variety of income sources. Distributions from retirement accounts increase in the short run. Self-employment income and disability insurance payments increase over longer periods. More generous U.I. benefits crowd out wage income and are associated with increased retirement account distributions. This combination of responses is consistent with U.I. benefits lengthening unemployment spells.

Suggested Citation

  • Laura Kawano & Sara LaLumia, 2017. "How Income Changes During Unemployment: Evidence from Tax Return Data," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 418-456.
    • Handle: RePEc:uwp:jhriss:v:52:y:2017:i:2:p:418-456
    Note: DOI: 10.3368/jhr.52.2.0414-6319R2
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