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How Income Changes During Unemployment: Evidence from Tax Return Data

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We use a panel of tax returns spanning 1999 to 2011 to provide new evidence on household experiences during unemployment. Unemployment is associated with roughly a 20% reduction in household wage earnings. Unemployment insurance compensates for half of these wage losses. Households also partially compensate by using a variety of income sources. Distributions from retirement accounts increase in the short run. Self-employment income and disability insurance payments increase over longer periods. More generous UI benefits crowd out wage income and are associated with increased distributions from retirement accounts. This combination of responses is consistent with UI benefits lengthening unemployment spells.

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  • Sara LaLumia & Laura Kawano, 2013. "How Income Changes During Unemployment: Evidence from Tax Return Data," Department of Economics Working Papers 2013-05, Department of Economics, Williams College, revised Mar 2015.
    • Handle: RePEc:wil:wileco:2013-05
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    1. Fagereng, Andreas & Onshuus, Helene & Torstensen, Kjersti N., 2024. "The consumption expenditure response to unemployment: Evidence from Norwegian households," Journal of Monetary Economics, Elsevier, vol. 146(C).
    2. Eduardo Ignacio Polo-Muro, 2021. "The effect of labor market shocks on mental health outcomes: evidence from the Spanish Great Recession," Working Papers 21.08, Universidad Pablo de Olavide, Department of Economics.
    3. Danny Yagan, 2019. "Employment Hysteresis from the Great Recession," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2505-2558.
    4. Aaron Albert, 2018. "Parental duties, labor market behavior, and single fatherhood in America," Review of Economics of the Household, Springer, vol. 16(4), pages 1063-1083, December.
    5. Javier Gardeazabal & Eduardo Polo-Muro, 2022. "Cultural expenditure of those who enter (or exit) unemployment," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 46(4), pages 571-596, December.

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