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The Wealth of the Unemployed: Adequacy and Implications for Unemployment Insurance


  • Jonathan Gruber


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.

Suggested Citation

  • Jonathan Gruber, 1999. "The Wealth of the Unemployed: Adequacy and Implications for Unemployment Insurance," NBER Working Papers 7348, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7348
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    References listed on IDEAS

    1. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-559, September.
    2. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
    3. Woodbury, Stephen A & Spiegelman, Robert G, 1987. "Bonuses to Workers and Employers to Reduce Unemployment: Randomized Trials in Illinois," American Economic Review, American Economic Association, vol. 77(4), pages 513-530, September.
    4. Rebecca M. Blank & David E. Card, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1157-1189.
    5. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    6. 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.
    7. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
    8. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
    9. Christopher J. O'Leary, 1998. "The Adequacy of Unemployment Insurance Benefits," Book chapters authored by Upjohn Institute researchers,in: Laurie J. Bassi & Stephen A. Woodbury (ed.), Reform of the Unemployment Insurance System: Research in Employment Policy, volume 1, pages 63-110 W.E. Upjohn Institute for Employment Research.
    10. Jonathan Gruber & Julie Berry Cullen, 1996. "Spousal Labor Supply as Insurance: Does Unemployment Insurance Crowd Outthe Added Worker Effect?," NBER Working Papers 5608, National Bureau of Economic Research, Inc.
    11. Elizabeth T. Powers, 1995. "Does means-testing welfare discourage saving? Evidence from the National Longitudinal Survey of Women," Working Paper 9519, Federal Reserve Bank of Cleveland.
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    Cited by:

    1. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    2. Walter Nicholson & Karen Needels, 2006. "Unemployment Insurance: Strengthening the Relationship between Theory and Policy," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 47-70, Summer.
    3. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection and Labor Policy and Technical Notes 25529, The World Bank.
    4. Milan Vodopevic, 2004. "Comparing Unemployment Insurance and Unemployment Assistance," World Bank Other Operational Studies 11811, The World Bank.

    More about this item

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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