Unemployment Insurance as a Financial Stabilizer: Evidence from Large Benefit Expansions (with Nick Flamang) – comments welcome!
AbstractTo what extent does unemployment insurance (UI) attenuate aggregate financial responses to unemployment shocks? We answer this question using administrative credit bureau records and the unprecedented changes in unemployment and UI generosity during the Covid-19 pandemic. We first find that aggregate sensitivity to the unemployment rate decreased by 50% for auto loans and 66% for credit cards between January 2017 and March 2021. To isolate the effect of UI from other contemporaneous policies shifting unemployment shock responsiveness, we employ a staggered event study design around state-level withdrawals from federal UI programs in late 2021. We find that almost all of the pandemic sensitivity drop is attributable to UI expansions. Our two designs are qualitatively robust to placebo tests on plausibly unaffected credit types, potential demand-side responses for increased credit, and alternate estimation specifications. In a back-of-the-envelope calculation, we calculate that UI expansions prevented about 59% of total potential delinquency-months. Taken together, these results imply that federal UI expansions have had a substantially stabilizing effect during the Covid-19 pandemic. Our findings thus provide powerful empirical support for a largely theoretical body of research on the role of UI as an automatic stabilizer of aggregate economic conditions.
Selected work in progress
Understanding Capital Gains Responses to Taxes using Transaction-Level Data (with Alisa Tazhitinova)
Unemployed Worker Liquidity, Job Search, and Reemployment Outcomes (with Nick Flamang)
Causes, Scope, and Consequences of Worker Misclassification: Evidence from Randomized Tax Audits (with David Coyne and Ithai Lurie)