Consumption Effects of Unemployment Insurance during the Covid-19 Pandemic

20 Pages Posted: 20 Jul 2020

See all articles by Diana Farrell

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute

Peter Ganong

University of Chicago; National Bureau of Economic Research (NBER)

Fiona Greig

JP Morgan Chase & Co. - JP Morgan Chase Institute

Max Liebeskind

JPMorgan Chase Institute

Pascal Noel

University of Chicago Booth School of Business

Joseph Vavra

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: July 16, 2020

Abstract

During the Covid-19 pandemic, unemployment insurance (UI) benefits have taken on an unprecedented role in the United States economy. In May 2020, total UI benefits were equal to 14.6 percent of total wages, more than five times the Great Recession peak. This is due to two factors: first, the high unemployment rate, which reached 14.7 percent in April 2020; and second, the expansion of UI benefits, including a $600 per week federal supplement paid to all benefit recipients. In this paper, we examine the effects of UI on consumption during the pandemic. Our first finding is that during the pandemic, while aggregate spending of the employed was down by 10 percent, the spending of unemployment benefit recipients increased by 10 percent, a pattern which is likely explained by the $600 supplement. Our second finding is that among the unemployed who experience a delay in receiving benefits, spending falls by 20 percent—a drop not seen by those who receive benefits more immediately after job loss. These findings suggest that allowing the $600 supplement to expire without any replacement could meaningfully reduce aggregate consumption.

Keywords: Household consumption, unemployment insurance, unemployment insurance benefits, aggregate consumption

JEL Classification: J65, E21, E24, I38, H31

Suggested Citation

Farrell, Diana and Ganong, Peter and Greig, Fiona and Liebeskind, Max and Noel, Pascal and Vavra, Joseph, Consumption Effects of Unemployment Insurance during the Covid-19 Pandemic (July 16, 2020). Available at SSRN: https://ssrn.com/abstract=3654274 or http://dx.doi.org/10.2139/ssrn.3654274

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

Peter Ganong

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Fiona Greig (Contact Author)

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

Max Liebeskind

JPMorgan Chase Institute ( email )

601 Pennsylvania Avenue NW
Washington, DC 20004
United States

Pascal Noel

University of Chicago Booth School of Business ( email )

Joseph Vavra

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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