Unemployment Insurance in Macroeconomic Stabilization

Kekre, Rohan

doi:10.2139/ssrn.3795662

Cited by 7 publications

(9 citation statements)

References 54 publications

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“…We find that the average quarterly MPC in the model is 14 percent, which is comparable to estimates found by Parker, Souleles, Johnson, and McClelland (2013), who document that individuals spend between 12 and 30 percent of unexpected tax rebates in the quarter that they are received. Furthermore, the model predicts that the difference in annual MPCs between the unemployed and employed is 24 percent, which is close to the results of Kekre (2019), who finds the difference to be 25 percent using the 2010 Survey of Household Income and Wealth.…”

Section: Validation and Empirical Elasticitiessupporting

confidence: 77%

“…Finally, our work has implications for the large strand of literature that studies positive and normative questions pertaining to UI under the presence of incomplete markets without aggregate risk (Hansen and Imrohoroglu 1992;Shimer and Werning 2008;Koehne and Kuhn 2015;Kroft and Notowidigdo 2016;Kekre 2019;Braxton, Herkenhoff, and Phillips 2020;Birinci, Karahan, Mercan, and See 2021) or with aggregate risk (Jung and Kuester 2015;Mitman and Rabinovich 2015;McKay and Reis 2016;Landais, Michaillat, and Saez 2018;Birinci 2019;McKay and Reis 2020;Pei and Xie 2020). 3 Relative to these papers, our model focuses on the role of cross-sectional heterogeneity in determining the magnitudes of labor market responses to UI changes.…”

Section: Introductionmentioning

confidence: 99%

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Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity

Birinci

See

2019

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We document considerable scope of heterogeneity within the unemployed, especially when the unemployed are divided along eligibility and receipt of unemployment insurance (UI). We develop a heterogeneous-agent job-search model capable of matching the wealth and income differences that distinguish UI recipients from non-recipients. Labor market responses to UI changes are non-monotonic in wealth because the poorest individuals exhibit weak responses due to the high value they attribute to employment. Differential elasticities imply that the extent to which structural models account for the composition of UI recipients is material to aligning predicted responses with empirical estimates and to policy evaluation.

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Section: Validation and Empirical Elasticitiessupporting

confidence: 77%

Section: Introductionmentioning

confidence: 99%

Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity

Birinci

See

2019

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“…Although most prior work on optimal UI benefits has focused on the level of UI benefits, there is substantial policy variation across countries, states, and time in the potential duration of benefits. A newer strand of the literature has developed theory to examine the welfare implications of extending the duration or changing the path of UI benefits (Kekre 2017, Schmieder and von Wachter 2017, Kolsrud et al 2018. Implementing these theories requires estimates for both the fiscal costs and the consumption-smoothing gain of extending the duration of UI benefits.…”

Section: Normative Implications For Ui Policymentioning

confidence: 99%

“…Our estimates address these twin concerns by using monthly data and decomposing household expenditure into 27 detailed categories. and von Wachter 2017, Kekre 2017, Kolsrud et al 2018. Although there is substantial research estimating the fiscal cost of extensions (summarized by Schmieder and von Wachter 2017), we are not aware of any paper that has estimated the consumption-smoothing gains from extensions.…”

mentioning

confidence: 99%

Consumer Spending during Unemployment: Positive and Normative Implications

Ganong

Noel

2019

American Economic Review

297

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Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels. (JEL D14, D91, E21, E24, E70, J65)

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“…Such an increase runs counter to the main mechanism for a large macro effect through reduced vacancies in a standard search model (Pissarides, 2000;. Instead, it is more consistent with models that predict an increase in tightness in response to UI extensions, such as the the job rationing model of Michaillat (2012) or the model of Kekre (2018) emphasizing increased vacancies due to the aggregate demand channel. In either case, these models would predict a macro effect that is smaller than the micro effect (Landais, Michaillat, and Saez, 2018b).…”

Section: Introductionmentioning

confidence: 73%