COBOLing Together UI Benefits: How Delays in Fiscal Stabilizers Impact Aggregate Consumption

Abstract

The United States experienced an unprecedented increase in unemployment insurance (UI) claims starting in March 2020, mainly due to layoffs caused by COVID-19. State unemployment insurance systems were inadequately prepared to process these claims. Those states using an antiquated programming language, COBOL, to process UI claims experienced longer delays in benefit disbursement. Using daily card consumption data from Affinity Solutions, I employ a two-way fixed effects estimator to measure the causal impact of COBOL-induced delays in UI benefits on aggregate consumption. The delays caused a 4.4 percentage point relative decline in total card consumption in COBOL states relative to non-COBOL states. Performing a back-of-the-envelope calculation using 2019 data, I find that real GDP declined by $181 billion (in 2012 dollars).

Keywords: unemployment insurance, automatic stabilizers, emergency unemployment benefits, consumption

JEL Classification: E24, J65, E21, I38