The Importance of Unemployment Insurance as an Automatic Stabilizer

72 Pages Posted: 12 Sep 2016 Last revised: 28 Apr 2022

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Amir Kermani

University of California, Berkeley; National Bureau of Economic Research (NBER)

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Date Written: September 2016

Abstract

We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local benefit generosity, we estimate that a one standard deviation increase in generosity attenuates the effect of adverse shocks on employment growth by 7% and on earnings growth by 6%. Consistent with a local demand channel, we find that consumption is less responsive to local labor demand shocks in counties with more generous benefits. Our analysis finds that the local fiscal multiplier of unemployment insurance expenditure is approximately 1.9.

Suggested Citation

Di Maggio, Marco and Kermani, Amir, The Importance of Unemployment Insurance as an Automatic Stabilizer (September 2016). NBER Working Paper No. w22625, Available at SSRN: https://ssrn.com/abstract=2837637

Marco Di Maggio (Contact Author)

Harvard Business School ( email )

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HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

National Bureau of Economic Research (NBER) ( email )

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Amir Kermani

University of California, Berkeley ( email )

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Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/amir/research/research.html

National Bureau of Economic Research (NBER) ( email )

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United States

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