Consumer Spending during Unemployment: Positive and Normative Implications

By P. Ganong, P. Noel. The American Economic Review, 2019

339 citations recorded by the source corpus.

Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels. (JEL D14, D91, E21, E24, E70, J65)

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d7d324c420dcde1edb568fbe7642c4cf97577a5e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

Initial Impacts of the Pandemic on Consumer Behavior: Evidence from Linked Income, Spending, and Savings Data (2020, background): “As mentioned previously, we document that average household spending fell over 35 percent, while the typical unemployed worker receiving UI only cuts spending around 6 percent in normal times (Ganong and Noel 2019).”
Pandemic, Shutdown and Consumer Spending: Lessons from Scandinavian Policy Responses to COVID-19 (2020, methodology): “…is enormous compared to spending drops in other contexts, e.g., it is four times larger than the typical spending drop around unemployment events (Ganong and Noel, 2019; Andersen et al., 2020b), but only around half the size of the aggregate spending drop in countries more adversely affected by…”
A Behavioral New Keynesian Model (2020, positive): “However, using micro data, Ganong and Noel (2017) find evidence for micro-level cognitive discounting, so that progress is being made in that direction too.”
Measuring the Labor Market at the Onset of the COVID-19 Crisis (2020, positive): “Ganong et al. (2020) document wide variation across states in unemployment insurance replacement rates under CARES, with a low median replacement rate of 129% in Maryland and a high of 177% in New Mexico.”
Consumer responses to the Covid‐19 crisis: evidence from bank account transaction data (2020, positive): “4Following Ganong and Noel (2019), we categorize spending by 4-digit Merchant Category Code, an international standard for classifying merchants by the type of goods and services they provide.”
A Unified Welfare Analysis of Government Policies* (2019, neutral): “Panel B: Social Insurance Disability Insurance Disability Insurance Changes in Benefit Generosity DI Generosity 2004 50 x x x Gelber et al. (2017) Disability Insurance Judge Leniency DI Judge 2005 47 x x x Gelber et al.”