The Wealth of the Unemployed: Adequacy and Implications for Unemployment Insurance

34 Pages Posted: 15 Dec 1999 Last revised: 30 Jan 2022

See all articles by Jonathan Gruber

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1999

Abstract

While there has been considerable discussion of the adequacy of unemployment insurance (UI) benefits as a form of income replacement, there is little evidence on the other resources that the unemployed have to finance their unemployment spells. In this paper I focus on focus on one form of resources, own wealth holdings. I find that the median worker has financial assets sufficient to finance roughly two-thirds of the income loss from an unemployment spell, but that there is tremendous heterogeneity in wealth holdings; almost one-third of workers can't even replace 10% of their income loss. Most strikingly, ex-ante wealth holdings decline precipitously with realized unemployment durations, both absolutely and (especially) relative to ex-post income loss, suggesting that adequacy could be increased if UI benefits were targeted to those with longer spells. I also find strong evidence that individuals who are eligible for more generous UI draw down their wealth more slowly during unemployment spells. This demonstrates that wealth is used as a consumption smoothing device alongside UI to cope with the income loss from unemployment.

Suggested Citation

Gruber, Jonathan, The Wealth of the Unemployed: Adequacy and Implications for Unemployment Insurance (September 1999). NBER Working Paper No. w7348, Available at SSRN: https://ssrn.com/abstract=194831

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