Unemployment Insurance benefit reduction and food hardship

Abstract

AbstractWe leverage the sharp drop in unemployment insurance (UI) benefits following the expiration of the Federal Pandemic Unemployment Compensation program to estimate the consumption smoothing effect of UI. The $600/week decline in supplemental UI benefits is estimated to reduce total food spending by 9.7% and the odds of having food sufficiency by 6.0%. The estimate for food spending translates to a marginal propensity to spend on food out of UI benefits of 0.06, or a 1.2% reduction in food spending for every 10 percentage point decline in UI replacement rate (calculated as the ratio of UI benefits to pre‐unemployment wages). We find that the consumption effect of UI is countercyclical, greater when economic conditions are weak. The UI effect is also heterogeneous over respondents differentiated by race and ethnicity, income, homeownership, presence of children, state unemployment rates, and state UI generosity. The estimated effect of UI on self‐assessed food sufficiency and confidence about future food sufficiency is largely consistent with the food spending results.