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Unemployment Insurance as a Housing Market Stabilizer

Author

Listed:
  • Joanne W. Hsu
  • David A. Matsa
  • Brian T. Melzer

Abstract

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we find that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefits and costs, the deadweight losses avoided from preventing mortgage defaults.

Suggested Citation

  • Joanne W. Hsu & David A. Matsa & Brian T. Melzer, 2018. "Unemployment Insurance as a Housing Market Stabilizer," American Economic Review, American Economic Association, vol. 108(1), pages 49-81, January.
    • Handle: RePEc:aea:aecrev:v:108:y:2018:i:1:p:49-81
    Note: DOI: 10.1257/aer.20140989
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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    1. Unemployment Insurance as a Housing Market Stabilizer (AER 2018) in ReplicationWiki

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