The Role of Liquidity and Substitution Effects of Unemployment Insurance in the Great Recession

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Abstract/Contents

Abstract: In response to the 2007 recession in the United States, the federal and state governments extended the duration of unemployment insurance benefits for millions of people by 13 to 72 weeks. Using data from the 2008 panel of the Survey on Income and Program Participation, this paper proceeds in three steps. I first estimate the effect of these extensions on the likelihood of re-employment for the pooled sample. I compare these estimates to others made using data from the Current Population Survey. I then investigate whether the effect is heterogeneous across individuals with different levels of liquid wealth. I find evidence that the effect is heterogeneous, which implies the presence of a substantial liquidity effect. Finally, I investigate the hypothesis that liquidity effects translate into improved post-unemployment wages. I find no evidence for this hypothesis.

Type of resource	text
Date created	May 2016

Author	Dannenmaier, Kay
Primary advisor	Pistaferri, Luigi
Degree granting institution	Stanford University, Department of Economics

Subject	Unemployment insurance
Subject	moral hazard
Subject	liquidity effect
Subject	expectations
Subject	Stanford Department of Economics
Genre	Thesis

Location	https://purl.stanford.edu/mx945gv8787

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Preferred Citation: Dannenmaier, Kay. (2016). The Role of Liquidity and Substitution Effects of Unemployment Insurance in the Great Recession. Stanford Digital Repository. Available at: https://purl.stanford.edu/mx945gv8787

Stanford University, Department of Economics, Honors Theses

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