NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Brian T. Melzer

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Working Papers

July 2014Positive Externalities of Social Insurance: Unemployment Insurance and Consumer Credit
with Joanne W. Hsu, David A. Matsa: w20353
This paper studies the impact of unemployment insurance (UI) on consumer credit markets. Exploiting heterogeneity in UI generosity across U.S. states and over time, we find that UI helps the unemployed avoid defaulting on their mortgage debt. We estimate that UI expansions during the Great Recession prevented about 1.4 million foreclosures. Lenders respond to this decline in default risk by expanding credit access and reducing interest rates for low-income households at risk of being laid off. Our findings call attention to two benefits of unemployment insurance not previously highlighted: reducing deadweight losses from loan default and expanding access to credit.

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