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About 9 million people are set to exhaust unemployment benefits at the end of this year. What happens to spending at exhaustion?
tldr:
1) people don’t prepare for exhaustion
2) cut spending a lot at exhaustion
3) including on groceries and medical
tldr:
1) people don’t prepare for exhaustion
2) cut spending a lot at exhaustion
3) including on groceries and medical
@pascaljnoel and I have a July 2019 AER paper about this using pre-covid data
https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/1/801/files/2019/06/ganong_noel_ui.pdf
https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/1/801/files/2019/06/ganong_noel_ui.pdf
How much do people cut spending at exhaustion?
By about 12%.
For comparison, when they are receiving UI spend falls < 1% per month.
By about 12%.
For comparison, when they are receiving UI spend falls < 1% per month.
What do people cut spending on?
Largest cuts are for stuff like home improvement and clothing. But these are a small share of spending.
So we also see large cuts (13%-15%) for categories like groceries, drug stores, and medical.
Largest cuts are for stuff like home improvement and clothing. But these are a small share of spending.
So we also see large cuts (13%-15%) for categories like groceries, drug stores, and medical.
People also draw down their checking accounts (h/t @qdbui for graphics on this plot... they are obviously much better than anything pascal and I could do)
How might effect differ this time from our prior paper? I really hope we don’t find out! (Congress should extend benefits)
reasons for smaller 
1) benefits were higher with the $600 supplement (PUC
2) avg benefit amount is smaller. spending drops smaller when benefits are a smaller share of income
1) benefits were higher with the $600 supplement (PUC
2) avg benefit amount is smaller. spending drops smaller when benefits are a smaller share of income
reasons for larger
1) This exhaustion will come for many as a surprise. This contrasts with our study, where exhaustion was predictable.
2) Most people who lose benefits will be PUA recipients at the margins of the labor market. Probably had less pre-crisis financial reserves
1) This exhaustion will come for many as a surprise. This contrasts with our study, where exhaustion was predictable.
2) Most people who lose benefits will be PUA recipients at the margins of the labor market. Probably had less pre-crisis financial reserves
Finally, we calculate using the Oct 2020 CPS that 41 percent of people who are unemployed and were laid off from their job (and therefore are most likely getting UI) have kids. So it’s not just the workers who will suffer; it is their kids too.
