How Income Changes During Unemployment: Evidence from Tax Return Data

53 Pages Posted: 21 Apr 2014 Last revised: 10 Mar 2015

See all articles by Laura Kawano

Laura Kawano

University of Michigan at Ann Arbor

Sara LaLumia

Williams College - Department of Economics

Date Written: March 7, 2015

Abstract

We use a panel of tax returns spanning 1999 to 2011 to provide new evidence on household experiences during unemployment. Unemployment is associated with roughly a 20% reduction in household wage earnings. Unemployment insurance compensates for half of these wage losses. Households also partially compensate by using a variety of income sources. Distributions from retirement accounts increase in the short run. Self-employment income and disability insurance payments increase over longer periods. More generous UI benefits crowd out household wage income and are associated with increased distributions from retirement accounts. This combination of responses is consistent with UI benefits lengthening unemployment spells.

Suggested Citation

Kawano, Laura and LaLumia, Sara, How Income Changes During Unemployment: Evidence from Tax Return Data (March 7, 2015). Available at SSRN: https://ssrn.com/abstract=2427135 or http://dx.doi.org/10.2139/ssrn.2427135

Laura Kawano (Contact Author)

University of Michigan at Ann Arbor ( email )

Sara LaLumia

Williams College - Department of Economics ( email )

Fernald House
Williamstown, MA 01267
United States

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