Unemployment Insurance as a Housing Market Stabilizer | Zendy

Joanne W. Hsu | Zendy; David A. Matsa | Zendy; Brian Melzer | Zendy

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Unemployment Insurance as a Housing Market Stabilizer

Author(s) -

Joanne W. Hsu,

David A. Matsa,

Brian Melzer

Publication year - 2018

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20140989

Subject(s) - generosity , unemployment , default , economics , foreclosure , recession , great recession , mortgage insurance , labour economics , monetary economics , insurance policy , finance , macroeconomics , general insurance , philosophy , theology

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we find that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefits and costs, the deadweight losses avoided from preventing mortgage defaults. (JEL D14, E32, G21, J65, R31)

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