Full Citation

Title: Unemployment Insurance as an Automatic Stabilizer: The Financial Channel

Citation Type: Miscellaneous

Publication Year: 2017

ISBN:

ISSN:

DOI: 10.2139/ssrn.2575434

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Abstract: We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local bene…t "generosity" (de…ned as the percentage of household income recovered by the unemployment bene…t), we estimate that a one standard deviation increase in generosity attenuates the e¤ect of adverse shocks on em-ployment growth by 7% and on earnings growth by 6%. Consistent with the hypothesis that this e¤ect derives from the local demand channel, we …nd that consumption is less responsive to local labor demand shocks in counties with more generous bene…ts. Our analysis …nds that the local …scal multiplier of unemployment insurance expenditure is approximately 1.9. Overall, our results suggest that UI has a bene…cial e¤ect on the economy by decreasing its sensitivity to shocks.

Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575434

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Authors: Di Maggio, Marco; Kermani, Amir

Publisher: Harvard Business School

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Other

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