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Reexamining the consumption smoothing benefits of Unemployment Insurance

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  • East, Chloe N.
  • Kuka, Elira

Abstract

The Great Recession spurred renewed interest in the moral hazard effects of the Unemployment Insurance (UI) program, however little research has focused on determining its benefits. This paper examines the consumption smoothing benefit of the UI program over the last 40years, finding strong evidence of heterogeneity in this effect over time. In particular, the effects of UI are smaller in the 1990s compared with the 1970s. The 1990s were unique because of the long period of low unemployment rates as well as relatively low UI program generosity, thus we test whether the consumption smoothing effects vary by the state unemployment rate and average program generosity. We find suggestive evidence that the effects are larger when the state unemployment rate and average generosity are high. Together, these two dimensions can explain around 30–46% of the differential effect that we find in the 1990s.

Suggested Citation

  • East, Chloe N. & Kuka, Elira, 2015. "Reexamining the consumption smoothing benefits of Unemployment Insurance," Journal of Public Economics, Elsevier, vol. 132(C), pages 32-50.
  • Handle: RePEc:eee:pubeco:v:132:y:2015:i:c:p:32-50
    DOI: 10.1016/j.jpubeco.2015.09.008
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    Cited by:

    1. Elira Kuka, 2018. "Quantifying the Benefits of Social Insurance: Unemployment Insurance and Health," NBER Working Papers 24766, National Bureau of Economic Research, Inc.
    2. repec:eee:intfor:v:33:y:2017:i:4:p:801-816 is not listed on IDEAS
    3. Peter Ganong & Pascal J. Noel, 2019. "Consumer Spending During Unemployment: Positive and Normative Implications," NBER Working Papers 25417, National Bureau of Economic Research, Inc.
    4. Peter Ganong & Pascal Noel, 2019. "Consumer Spending During Unemployment: Positive and Normative Implications," Working Papers 2019-006, Human Capital and Economic Opportunity Working Group.

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