Knowledge of Future Job Loss and Implications for Unemployment Insurance

Abstract

for helpful research assistance. Early versions of Sections 4 and 6 of this paper appeared in the second chapter in my MIT PhD thesis and also circulated under the title "Private Information and Unemployment Insurance". Support from NSF Graduate Research Fellowship and the NBER Health and Aging Fellowship, under the National Institute of Aging Grant Number T32-AG000186 is gratefully acknowledged. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Consumer Spending During Unemployment: Positive and Normative Implications

“…The mental accounting hypothesis is that when someone has a decline in income, she cuts outflows from the account with diminished income. 21 In percentage terms, the two-month drop in spending falls from 10.7 percent to 8.7 percent, as shown in online Appendix (2007), , East and Kuka (2015), Chodorow-Reich and Karabarbounis (2016), Saporta-Eksten (2014), and Hendren (2017). For examples of non-U.S. estimates, see Browning and Crossley (2001) and Kolsrud et al (2018) for estimates for Canada and Sweden, respectively.…”

“…Another piece of evidence that may address concerns about missing spending data is that at a low frequency, our estimates of the average drop in spending during unemployment are quantitatively in line with prior estimates using survey data from the U.S. For example, Gruber (1997) reports that food spending falls by 6.8 percent. 22 Although Gruber's empirical specification does not generate a standard error for this statistic, Hendren (2017) reports 20 One might have expected that households would cut spending out of every bank account at exhaustion, not just the account which stopped receiving UI payments. The absence of a decline in spending in other household accounts could arise from several channels, including a convenience motive or a form of mental accounting.…”

Personal Experiences and Expectations about Aggregate Outcomes

“…In addition, both markets are of interest in and of themselves. House price expectations play an important role in understanding housing booms and busts (e.g., Piazzesi and Schneider, ; Goetzmann, Peng, and Yen, ; Glaeser, Gottlieb, and Gyourko, ; Burnside, Eichenbaum, and Rebelo, ; Glaeser and Nathanson, ; Case, Shiller, and Thompson, ; Bailey et al., ), while employment expectations affect the speed of economic recovery after recessions, and can influence households' job search behavior (see Carroll and Dunn, ; Tortorice, ; Hendren, ). Our results therefore shed light on how expectations about these two key aggregate outcomes are formed while also providing insights into the expectation formation process more generally.…”

Can the Unemployed Borrow? Implications for Public Insurance

“…Our article is also related to the literature on private unemployment insurance (Chiu and Karni [1998] and Hendren [2015]). Similar to Zame [1993], borrowing and default partially complete the market, allowing individuals to imperfectly mimic unemployment insurance contracts.…”