Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data

73 Pages Posted: 11 Feb 2021

See all articles by Peter Ganong

Peter Ganong

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

Fiona Greig

JPMorgan Chase Institute

Max Liebeskind

JPMorgan Chase Institute

Pascal Noel

University of Chicago Booth School of Business

Daniel M Sullivan

JPMorgan Chase Institute

Joseph Vavra

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

Date Written: February 11, 2021

Abstract

How did the largest expansion of unemployment benefits in U.S. history affect household behavior? Using anonymized bank account data covering millions of households, we provide new empirical evidence on the spending and job search responses to benefit changes during the pandemic and compare those responses to the predictions of benchmark structural models. We find that spending responds more than predicted, while job search responds an order of magnitude less than predicted.

In sharp contrast to normal times when spending falls after job loss, we show that when expanded benefits are available, spending of the unemployed actually rises after job loss. Using quasi-experimental research designs, we estimate a large marginal propensity to consume out of benefits. Notably, spending responses are large even for households who have built up substantial liquidity through prior receipt of expanded benefits. These large responses contrast with a theoretical prediction that spending responses should shrink with liquidity.

Simple job search models predict a sharp decline in search in the wake of a substantial benefit expansion, followed by a sustained rebound when benefits expire. We instead find that the job- finding rate is quite stable. Moreover, we document that recall plays an important role in driving job-finding dynamics throughout the pandemic. A model extended to fit these key features of the data implies small job search distortions from expanded unemployment benefits.

Jointly, these spending and job finding facts suggest that benefit expansions during the pandemic were a more effective policy than predicted by standard structural models. Abstracting from general equilibrium effects, we find that overall spending was 2.0-2.6 percent higher and employment only 0.2-0.4 percent lower as a result of the benefit expansions.

Suggested Citation

Ganong, Peter and Greig, Fiona and Liebeskind, Max and Noel, Pascal and Sullivan, Daniel M and Vavra, Joseph, Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data (February 11, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-19, Available at SSRN: https://ssrn.com/abstract=3784008

Peter Ganong (Contact Author)

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
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Fiona Greig

JPMorgan Chase Institute ( email )

Washington, DC
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 )

Daniel M Sullivan

JPMorgan Chase Institute ( email )

601 Pennsylvania Avenue NW
Washington, DC 20004
United States

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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