Relaxing Household Liquidity Constraints through Social Security
29 Pages Posted: 5 May 2020 Last revised: 11 May 2020
Date Written: May 4, 2020
More than a quarter of working-age households in the United States do not have sufficient savings to cover their expenditures after a month of unemployment. We explore proposals to alleviate financial distress arising from the COVID-19 pandemic. We show that giving workers early access to just 1% of their future Social Security benefits allows most households to maintain their current consumption for at least two months. Unlike other approaches (like early access to retirement accounts, stimulus relief checks, and expanded unemployment insurance), access to Social Security serves the needs of workers made vulnerable by the crisis, but does not increase the overall liabilities of the federal government or have distortionary effects on the labor market.
Keywords: COVID-19, Social Security, Household Finance
JEL Classification: E21, G51, H55, H12
Suggested Citation: Suggested Citation