Inequality in high-cost borrowing and unemployment insurance generosity in US states during the COVID-19 pandemic

Lawrence M. Berger, Meta Brown, J. Michael Collins, Rachel E. Dwyer (), Jason N. Houle, Stephanie Moulton (), Davon Norris and Alec P. Rhodes
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Lawrence M. Berger: University of Wisconsin–Madison
Meta Brown: The Ohio State University
J. Michael Collins: University of Wisconsin–Madison
Rachel E. Dwyer: The Ohio State University
Jason N. Houle: Dartmouth College
Stephanie Moulton: The Ohio State University
Davon Norris: University of Michigan
Alec P. Rhodes: University of Wisconsin–Madison

Nature Human Behaviour, 2024, vol. 8, issue 9, 1676-1688

Abstract: Abstract US consumers may turn to the private market for credit when income and government benefits fall short. The most vulnerable consumers have access only to the highest-cost loans. Prior research on trade-offs of credit with government welfare support cannot distinguish between distinct forms of unsecured credit due to data limitations. Here we provide insight on credit–welfare state trade-offs vis-à-vis unemployment insurance generosity by leveraging a large sample of credit data that allow us to separate credit cards, personal loans and alternative financial services loans and to analyse heterogeneity in credit use by household income. We find that more generous state unemployment insurance benefits were associated with a lower probability of high-cost credit use during the first seven quarters of the coronavirus disease 2019 (COVID-19) pandemic. This inverse association was concentrated among consumers living in low-income households. Our results support theories that public benefits are inversely associated with the use of costly credit.

Date: 2024
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DOI: 10.1038/s41562-024-01922-8

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