Abstract

http://ssrn.com/abstract=2185198
 
 

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Unemployment Insurance and Consumer Credit


Joanne W. Hsu


Federal Reserve Board of Governors

David A. Matsa


Northwestern University - Kellogg School of Management

Brian Melzer


Northwestern University - Kellogg School of Management - Department of Finance

November 29, 2012


Abstract:     
This paper examines the impact of unemployment insurance (UI) on credit markets. Exploiting heterogeneity in the generosity of unemployment insurance across US states and over time, we find that UI helps the unemployed avoid defaulting on their debt. For every $1,000 increase in maximum UI benefits, mortgage delinquency drops by 2% and the eviction rate drops by 10% among unemployed homeowners. We also find that lenders respond to this decline in default risk by expanding credit access for low-income households who are at risk of being laid off. For every $1,000 increase maximum UI benefits, low-income households are offered $900 (4%) more in credit card debt as well as lower interest rates on credit cards and mortgages (0.5% reduction). These results show that the poor benefit from the insurance provided by a stronger social safety net even without experiencing a negative shock.

Number of Pages in PDF File: 26

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Date posted: December 5, 2012  

Suggested Citation

Hsu, Joanne W. and Matsa, David A. and Melzer, Brian, Unemployment Insurance and Consumer Credit (November 29, 2012). Available at SSRN: http://ssrn.com/abstract=2185198 or http://dx.doi.org/10.2139/ssrn.2185198

Contact Information

Joanne W. Hsu
Federal Reserve Board of Governors ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
David A. Matsa (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)
Brian Melzer
Northwestern University - Kellogg School of Management - Department of Finance ( email )
Evanston, IL 60208
United States
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