Between a Rock and a Hard Place: The Costs and Benefits of Expanded Unemployment Insurance Benefits

Abstract

We examine how the withdrawal of the largest expansion of unemployment insurance (UI) benefits in U.S. history affected job-finding, the demand for other government assistance, and defaults on credit products. Using administrative UI data merged with applications for government services and credit records, we show that the withdrawal of expanded UI benefits led to an increase in job-finding that was most pronounced among credit-constrained individuals. The cost-savings from higher job-finding came at the expense of increased demand for other government assistance and higher credit card defaults. Our results highlight an important interaction between UI and other social insurance programs that is often ignored in the literature.

Keywords: Unemployment, unemployment insurance, social insurance, coronavirus pandemic, household finance

JEL Classification: J65, G51, H00