Recovering from Job Loss: The Role of Unemployment Insurance

JPMorgan Chase & Co., September 2016

16 Pages Posted: 6 Feb 2017

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

JPMorgan Chase Institute

Pascal Noel

University of Chicago Booth School of Business

Date Written: September 15, 2016

Abstract

In this report JPMorgan Chase Institute assembled a de-identified sample of 160,000 regular Chase customers who received unemployment insurance (UI) between 2014 and 2016 across 18 states to evaluate the role that UI plays in mitigating the financial impacts of job loss. Our results show that UI is remarkably effective at preventing large spending drops among the short-term unemployed. First, UI softens the drop in family income due to job loss from roughly $1,826 a month — a 46 percent drop in monthly income — to just $617 a month — a 16 percent drop. Second, spending drops by just 5 percent upon job loss because UI benefits boost spending dramatically, averting 74 percent of the drop. Third, spending declines coincide with income losses. Income and spending recover within 18 months for the short-term unemployed but remain depressed for the long-term unemployed. When UI benefits are less generous, the long-term unemployed experience more economic hardship but also go back to work sooner. Fourth, among all UI recipients, job loss causes a drop in discretionary spending and student loan payments, but the long-term unemployed cut nearly every category of spending when UI runs out. And finally, families with high liquid assets reduce their spending upon job loss by roughly half as much as families with low liquid assets. With just 27 percent of the unemployed receiving UI — a record low recipiency rate — this report provides a critical fact base to inform efforts to reform UI.

Keywords: Unemployment, Spending

JEL Classification: E21, E24, J65

Suggested Citation

Farrell, Diana and Ganong, Peter and Greig, Fiona and Noel, Pascal, Recovering from Job Loss: The Role of Unemployment Insurance (September 15, 2016). JPMorgan Chase & Co., September 2016, Available at SSRN: https://ssrn.com/abstract=2911310

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)

JPMorgan Chase Institute ( email )

Washington, DC
United States

Pascal Noel

University of Chicago Booth School of Business ( email )

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