Working Paper: NBER ID: w22625
Authors: Marco Di Maggio; Amir Kermani
Abstract: We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local benefit generosity, we estimate that a one standard deviation increase in generosity attenuates the effect of adverse shocks on employment growth by 7% and on earnings growth by 6%. Consistent with a local demand channel, we find that consumption is less responsive to local labor demand shocks in counties with more generous benefits. Our analysis finds that the local fiscal multiplier of unemployment insurance expenditure is approximately 1.9.
Keywords: unemployment insurance; automatic stabilizer; economic shocks; local labor market
JEL Codes: E24; E62; H53; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment Insurance (J65) | Elasticity of Employment Growth (J23) |
| Unemployment Insurance (J65) | Elasticity of Earnings Growth (O49) |
| Unemployment Insurance (J65) | Elasticity of Consumption (Car Sales) (D12) |
| Bartik Shock (Y60) | Unemployment Insurance (J65) |