The importance of unemployment benefits for protecting against income drops | Equitable Growth

Should Read: Peter Ganong and Pascal Noel: Consumer spending during unemployment: Positive and normative implications: "We study... unemployment insurance... using de-identified data from nearly 200,000 bank accounts...

...Spending on nondurables falls by 6% at the onset of unemployment, is largely stable during UI receipt, and then falls by an additional 13% at benefit exhaustion.... That spending responds to a large and predictable income drop sharpens an existing puzzle of the empirical excess sensitivity of spending to income... hand-to-mouth consumers... inattentive consumers.... Because spending is so much lower after UI exhaustion than during UI receipt, the consumption-smoothing gains from extending UI benefits are at least three times as big as the gains from raising the level of UI benefits.