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Unemployment Insurance Benefit Levels and Consumption Changes

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  • Martin Browning
  • Thomas Crossley

Abstract

We use a survey of unemployed people to examine how a job loss impacts on household expenditures. The principle focus is on the effect of the level of income replacement provided by Unemployment Insurance. 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 16% 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 hosuehold income. The effects of varying the replacement ratio are relatively small. We only find effects for those who did not have assets at the job loss and even for them the elasticity of total expenditure with respect to benefit is msall. We conclude that for most of our sample, small changes in the benefit level will have no effect on living standards within the household and hence on other facets of behavious such as job search, unemployment duration and the quality of any new job taken.

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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 1996-01.

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Length: 38 pages
Date of creation: Jan 1996
Date of revision:
Handle: RePEc:mcm:deptwp:1996-01

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References

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  1. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  2. John P. Haisken-DeNew & Christoph M. Schmidt, . "Inter-Industry and Inter-Region Differentials: Mechanics and Interpretation," Working Papers 9504, SELAPO Center for Human Resources.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  11. 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..
  12. Hamermesh, Daniel S, 1982. "Social Insurance and Consumption: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 72(1), pages 101-13, March.
  13. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
  20. repec:fth:prinin:387 is not listed on IDEAS
  21. Ioannides, Yannis M., 1981. "Job search, unemployment and savings," Journal of Monetary Economics, Elsevier, vol. 7(3), pages 355-370.
  22. 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.
  23. George J. Borjas, 1988. "Self-Selection and the Earnings of Immigrants," NBER Working Papers 2248, National Bureau of Economic Research, Inc.
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  1. Bruce Bartlett opposes a payroll tax reduction.
    by Ralph Musgrave in Ralphonomics on 2011-09-02 08:53:00
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