How Well Insured are Job Losers? Efficacy of the Public Safety Net

Abstract

An extensive literature in economics documents large and persistent declines in earnings following involuntary job loss. We study whether the public safety net mitigates this loss in resources using the Survey of Income and Program Participation in 1996-2013. With an individual fixed effects model, we document which public safety net programs provide the most insurance, and how this varies by pre-job-loss characteristics. We find that Unemployment Insurance provides the largest buffer against lost income, but that due to the structure of the program, the neediest are less-well insured (in terms of dollars transferred and percentage of lost earnings replaced), compared to middle and higher income job losers. This has important implications for the progressivity of the safety net, and how best to support displaced workers, which is crucial to understand for job losers at any time, and especially now, in light of the historic number of job losses during the COVID-19 pandemic. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.