How Income Changes During Unemployment: Evidence from Tax Return Data
53 Pages Posted: 21 Apr 2014 Last revised: 10 Mar 2015
Date Written: March 7, 2015
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.
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