Working Paper: NBER ID: w20353
Authors: Joanne W. Hsu; David A. Matsa; Brian T. Melzer
Abstract: This paper studies the impact of unemployment insurance (UI) on consumer credit markets. Exploiting heterogeneity in UI generosity across U.S. states and over time, we find that UI helps the unemployed avoid defaulting on their mortgage debt. We estimate that UI expansions during the Great Recession prevented about 1.4 million foreclosures. Lenders respond to this decline in default risk by expanding credit access and reducing interest rates for low-income households at risk of being laid off. Our findings call attention to two benefits of unemployment insurance not previously highlighted: reducing deadweight losses from loan default and expanding access to credit.
Keywords: Unemployment Insurance; Consumer Credit; Mortgage Delinquency; Foreclosures; Economic Policy
JEL Codes: D14; G21; H31; R28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment Insurance (UI) (J65) | Mortgage Delinquency (G21) |
| Increase in UI benefits (J65) | Reduction in Mortgage Delinquency (G21) |
| Unemployment Insurance (UI) benefits (J65) | Credit Access (G21) |
| Unemployment Insurance (UI) benefits (J65) | Interest Rates for Low-Income Households (G59) |
| Unemployment Insurance (UI) benefits (J65) | Foreclosures (G33) |
| Unemployment Insurance (UI) benefits (J65) | Relocations and Evictions (R23) |