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 an increase in administrative burdens for potential claimants, which led to longer delays in benefit disbursement and an increase in discouraged filers. Using daily card consumption data from Affinity Solutions, I employ a two-way fixed effects estimator to estimate the causal impact of having an antiquated UI benefit system on aggregate consumption. The antiquated UI systems caused a 3.7 percentage point relative decline in total card consumption in COBOL states relative to non-COBOL states. This effect can be decomposed into three types: (1) delays in a claimant filing a claim, (2) delays in a UI benefit system processing a claim, and (3) an increase in discouraged filers. I find a 1.4 percentage point increase in the share of claims that experience a processing delay over 70 days in COBOL states relative to non-COBOL states. I also find suggestive evidence that the increase in administrative burdens for claimants in COBOL states led to an additional 5.4 million discouraged filers relative to non-COBOL states. These discouraged filers would have claimed UI benefits in COBOL states if the administrative burdens in their COBOL states had been as low as in non-COBOL states. Performing a back-of-the-envelope calculation using 2019 data, I find that a 3.7 percentage point decline in consumption in COBOL states in 2020 after the emergency declaration corresponds to a real GDP decline of $230 billion (in 2012 dollars).

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

JEL Classification: E24, J65, E21, I38