Relaxing Household Liquidity Constraints through Social Security

40 Pages Posted: 5 May 2020 Last revised: 21 Jul 2020

See all articles by Sylvain Catherine

Sylvain Catherine

University of Pennsylvania - Finance Department

Max Miller

University of Pennsylvania, The Wharton School, Finance Department

Natasha Sarin

University of Pennsylvania Carey Law School

Date Written: May 4, 2020

Abstract

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. Recent proposals suggest giving workers early access to a small portion of their future Social Security benefits to finance their consumption during the COVID-19 pandemic. We empirically analyze their impact. Relying on data from the Survey of Consumer Finances, we build a measure of households' expected time to cash shortfall based on the incidence of COVID-induced unemployment. We show that access to 1% of future benefits allows 75% of households to maintain their current consumption for three months in case of unemployment. We then compare the efficacy of access to Social Security benefits to already legislated approaches, including early access to retirement accounts, stimulus relief checks, and expanded unemployment insurance.

Keywords: COVID-19, Social Security, Household Finance

JEL Classification: E21, G51, H55, H12

Suggested Citation

Catherine, Sylvain and Miller, Max and Sarin, Natasha, Relaxing Household Liquidity Constraints through Social Security (May 4, 2020). Available at SSRN: https://ssrn.com/abstract=3593054 or http://dx.doi.org/10.2139/ssrn.3593054

Sylvain Catherine

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Max Miller

University of Pennsylvania, The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Natasha Sarin (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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