Can the Unemployed Borrow? Implications for Public Insurance / J. Carter Braxton, Kyle F. Herkenhoff, Gordon M. Phillips.

Format:

Book

Author/Creator:

Braxton, J. Carter.

Contributor:

National Bureau of Economic Research.

Herkenhoff, Kyle F.

Phillips, Gordon M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27026.

NBER working paper series no. w27026

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We show that unemployed individuals maintain significant access to credit. Following job loss, the unconstrained borrow, while the constrained default and delever. Both defaulters and borrowers are using credit to smooth consumption. We quantitatively show that long-term credit relationships and credit-registries allow the unemployed to partially offset income losses using credit. We estimate the model and find that the optimal provision of public insurance is unambiguously lower with greater credit access. Using a utilitarian welfare criterion, the optimal steady-state policy is to lower the replacement rate of public insurance from the current US policy of 41.2% to 38.3%. Moreover, lowering the replacement rate to 38.3% yields welfare gains to the majority of workers along the transition path.

Notes:

Print version record

April 2020.