Unemployment Insurance Benefit Levels and Consumption Changes
AbstractA principal motivation for Unemployment Insurance (UI) schemes is to support consumption smoothing. The magnitude of the consumption smoothing benefits of UI depend on the extent to which households are liquidity constrained. We use a survey of unemployed people to examine how a job loss impacts on household expenditures. The principal focus is on the effect of the level of income replacement provided by UI. We restrict attention to a sub-sample of respondents who are still in their first spell of unemployment after six months. For this group we find large consumption falls, averaging about 14% of total expenditure. The actual fall depends on a variety of factors of which the most important is the pre-job loss ratio of the respondent's income to household income. These consumption falls confound the ‘permanent income’ or wealth shock of job loss, costs of working and, potentially, a liquidity constraint or ‘transitory income’ effect. The effects of varying the replacement ratio - which isolates the transitory effect - are relatively small. We only find effects for those who did not have assets at the job loss. Even for them, the elasticity of total expenditure with respect to benefit is small. We conclude that for most of our sample, small changes in the benefit level will have almost no effect on living standards within the household and hence little impact on other facets of behavior such as job search, unemployment duration and the quality of any new job taken. The data are consistent, however, with some households being liquidity constrained.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by McMaster University in its series Canadian International Labour Network Working Papers with number 25.
Length: 36 pages
Date of creation:
Date of revision:
Contact details of provider:
Postal: 1280 Main Street West, Hamilton, Ontario, L8S 4M4
Phone: (905) 525-9140 ext. 22765
Fax: (905) 521-8232
Web page: http://www.mcmaster.ca/economics/
More information through EDIRC
Other versions of this item:
- Browning, Martin & Crossley, Thomas F., 2001. "Unemployment insurance benefit levels and consumption changes," Journal of Public Economics, Elsevier, vol. 80(1), pages 1-23, April.
- Martin Browning & Thomas Crossley, 1999. "Unemployment Insurance Benefit Levels and Consumption Changes," CEPR Discussion Papers 405, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Martin Browning & Thomas Crossley, 1996. "Unemployment Insurance Benefit Levels and Consumption Changes," Discussion Papers 96-11, University of Copenhagen. Department of Economics.
- Martin Browning & Thomas Crossley, 1996. "Unemployment Insurance Benefit Levels and Consumption Changes," Department of Economics Working Papers 1996-01, McMaster University.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-01-25 (All new papers)
- NEP-LTV-1999-08-30 (Unemployment, Inequality & Poverty)
- NEP-PBE-1999-01-25 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carroll, Christopher D, 1997.
"Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(1), pages 1-55, February.
- Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
- Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
- Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
- David Card & A. Abigail Payne, 1998.
"School Finance Reform, the Distribution of School Spending, and the Distribution of SAT Scores,"
NBER Working Papers
6766, National Bureau of Economic Research, Inc.
- David Card & Abigail A. Payne, 1997. "School Finance Reform, the Distribution of School Spending, and the Distribution of SAT Scores," Working Papers 766, Princeton University, Department of Economics, Industrial Relations Section..
- Long, James E, 1980. "The Effect of Americanization on Earnings: Some Evidence for Women," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 620-29, June.
- Martin Browning & Mette Ejrnæs, 2009.
"Consumption and Children,"
The Review of Economics and Statistics,
MIT Press, vol. 91(1), pages 93-111, February.
- Borjas, George J. & Sueyoshi, Glenn T., 1994.
"A two-stage estimator for probit models with structural group effects,"
Journal of Econometrics,
Elsevier, vol. 64(1-2), pages 165-182.
- George J. Borjas & Glenn T. Sueyoshi, 1993. "A Two-Stage Estimator for Probit Models with Structural Group Effects," NBER Technical Working Papers 0146, National Bureau of Economic Research, Inc.
- Martin Browning & Annamaria Lusardi, 1995.
"Household Saving: Micro Theories and Micro Facts,"
Department of Economics Working Papers
1995-02, McMaster University.
- Baker, Michael & Benjamin, Dwayne, 1997. "The Role of the Family in Immigrants' Labor-Market Activity: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 87(4), pages 705-27, September.
- Ioannides, Yannis M., 1981. "Job search, unemployment and savings," Journal of Monetary Economics, Elsevier, vol. 7(3), pages 355-370.
- Blau, Francine D & Kahn, Lawrence M, 1996. "Wage Structure and Gender Earnings Differentials: An International Comparison," Economica, London School of Economics and Political Science, vol. 63(250), pages S29-62, Suppl..
- John P. Haisken-DeNew & Christoph M. Schmidt, .
"Inter-Industry and Inter-Region Differentials: Mechanics and Interpretation,"
9504, SELAPO Center for Human Resources.
- John P. Haisken-DeNew & Christoph M. Schmidt, 2000. "Interindustry and Interregion Differentials: Mechanics and Interpretation," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 516-521, August.
- repec:fth:prinin:387 is not listed on IDEAS
- Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
- Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
- Michael P. Kidd & Michael Shannon, 1996.
"The gender wage gap: A comparison of Australia and Canada,"
Industrial and Labor Relations Review,
ILR Review, Cornell University, ILR School, vol. 49(4), pages 729-746, July.
- Michael P. Kidd & Michael Shannon, 1996. "The Gender Wage Gap: A Comparison of Australia and Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 121-25, April.
- repec:pri:indrel:766 is not listed on IDEAS
- Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
- Hamermesh, Daniel S, 1982.
"Social Insurance and Consumption: An Empirical Inquiry,"
American Economic Review,
American Economic Association, vol. 72(1), pages 101-13, March.
- Daniel S. Hamermesh, 1980. "Social Insurance and Consumption: An Empirical Inquiry," NBER Working Papers 0600, National Bureau of Economic Research, Inc.
- Amemiya, Takeshi, 1978. "A Note on a Random Coefficients Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 793-96, October.
- Carroll, Christopher D & Rhee, Byung-Kun & Rhee, Changyong, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 685-99, August.
- George J. Borjas, 1988.
"Self-Selection and the Earnings of Immigrants,"
NBER Working Papers
2248, National Bureau of Economic Research, Inc.
- Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, vol. 10(3), pages 403-425, December.
- Antecol, Heather & Kuhn, Peter, 2000. "Gender as an Impediment to Labor Market Success: Why Do Young Women Report Greater Harm?," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 702-28, October.
- Kell, Michael & Wright, Jane, 1990. "Benefits and the Labour Supply of Women Married to Unemployed Men," Economic Journal, Royal Economic Society, vol. 100(400), pages 119-26, Supplemen.
- Robert W. Fairlie & Bruce D. Meyer, 1996. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 757-793.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Bruce Bartlett opposes a payroll tax reduction.
by Ralph Musgrave in Ralphonomics on 2011-09-02 08:53:00
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.