Essays on the Protective Power of the U.S. Safety Net

Download or read book Essays on the Protective Power of the U.S. Safety Net written by Elira Kuka and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation focuses on understanding how government policies such as the Unemployment Insurance (UI) and the Earned Income Tax Credit (EITC) help buffer economic shocks due to job loss or recessions. The Unemployment Insurance (UI) program was the largest safety net program during the Great Recession, providing cash benefits to more than 10 million individuals who lost their jobs during this period. While the literature of the effects of UI on job search and unemployment duration has been extensive, and particularly active since the Great Recession, research on the benefits of the program on individual wellbeing has been limited. Given that understanding these potential benefits is key to designing the optimal level of UI benefits, the first two chapters of my dissertation focus on empirically quantifying such benefits. Chapter 1, joint with Chloe N. East, extends Gruber's (1997) pioneering work on the food consumption smoothing benefits of UI by adding data from the last two decades of the Panel Study of Income Dynamics (PSID), a period during which the economy and the safety net underwent many changes. Our results show that, while the food consumption smoothing effects of UI are strong in the 1970s and the 1980s, consistent with Gruber (1997), these effects are smaller in the last two decades. We find new evidence that the protective effects of UI are strongest during recessions, and that the 1990s decline in UI's protective effects is in part driven by the decrease in average UI program generosity. Finally, we find no evidence that this decline is driven by other factors, such as changes in other safety net programs, changes in selection into unemployment, or changes in the fraction of income that families spend on food. Chapter 2 analyzes the health status, health utilization, and risky behaviors of displaced individuals. Given that job loss has been associated with decreased health and increased mortality, this paper uses the 1993-2012 Behavioral Risk Factor Surveillance System (BRFSS) and Survey of Income and Program Participation (SIPP) to empirically estimate whether UI generosity mitigates any of the negative health effects of job loss. The empirical strategy relies on exploiting variation in the generosity of UI benefits caused by exogenous changes in state UI laws, similar to Gruber (1997). The results show higher UI generosity increases health insurance coverage and health utilization and improves self-reported health. Moreover, I find that these effects are stronger during periods of high unemployment rates. Finally, I find no effects on healthy or risky behaviors, nor on health conditions such as diabetes and blood pressure. Finally, Chapter 3 (joint with Marianne Bitler and Hilary Hoynes) analyzes the response to business cycles of the Earned Income Tax Credit (EITC). The U.S. safety net has undergone a dramatic transformation in the past fifteen years, with a substantial increase in "in-work" assistance through the EITC. Thus we evaluate whether the EITC satisfies a defining feature of a safety net program -- that it responds to economic need. In particular, we explore how EITC participation and expenditures change with the business cycle, which is theoretically ambiguous since the EITC requires positive earned income. We use administrative IRS data from 1996--2008, and our results show that higher unemployment rates lead to higher EITC caseloads for married couples, but not for single individuals. These patterns are consistent with static labor supply theory, and how economic shocks are likely to affect one versus two-earner households.