The Wealth of the Unemployed: Adequacy and Implications for Unemployment Insurance
Jonathan Gruber
No 7348, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
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.
JEL-codes: H3 J6 (search for similar items in EconPapers)
Date: 1999-09
New Economics Papers: this item is included in nep-lab and nep-pbe
Note: LS PE
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Citations: View citations in EconPapers (6)
Published as Jonathan Gruber, 2001. "The Wealth of the unemployed," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 55(1), pages 79-94, October.
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