While there has been considerable discussion of the adequacy of unemployment insurance (UI) benefits as a form of income replacement, there is little evidence on the other resources that the unemployed have to finance their unemployment spells. In this paper I focus on focus on one form of resources, own wealth holdings. I find that the median worker has financial assets sufficient to finance roughly two-thirds of the income loss from an unemployment spell, but that there is tremendous heterogeneity in wealth holdings; almost one-third of workers can't even replace 10% of their income loss. Most strikingly, ex-ante wealth holdings decline precipitously with realized unemployment durations, both absolutely and (especially) relative to ex-post income loss, suggesting that adequacy could be increased if UI benefits were targeted to those with longer spells. I also find strong evidence that individuals who are eligible for more generous UI draw down their wealth more slowly during unemployment spells. This demonstrates that wealth is used as a consumption smoothing device alongside UI to cope with the income loss from unemployment.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7348.
Length: Date of creation: Sep 1999 Date of revision: Handle: RePEc:nbr:nberwo:7348
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Find related papers by JEL classification: J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
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