TY  - JOUR
AU  - Engen,Eric M.
AU  - Gruber,Jonathan
TI  - Unemployment Insurance and Precautionary Saving
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5252
PY  - 1995
Y2  - September 1995
DO  - 10.3386/w5252
UR  - http://www.nber.org/papers/w5252
L1  - http://www.nber.org/papers/w5252.pdf
N1  - Author contact info:
Eric M. Engen
American Enterprise Institute
1150 Seventeenth Street, NW
Washington, DC 20036
Tel: 202/862-5837
Fax: 202/862-7177
E-Mail: eric.m.engen@frb.gov

Jonathan Gruber
Department of Economics, E52-434
MIT
77 Massachusetts Avenue
Cambridge, MA 02139
Tel: 617/253-8892
Fax: 617/253-1330
E-Mail: gruberj@mit.edu
AB  - We consider both theoretically and empirically the effect of unemployment insurance (UI) on precautionary savings behavior. Simulations of a stochastic life cycle model suggest that increasing the generosity of UI will substantially lower the asset holdings of the median worker, and that this effect will both rise with unemployment risk and fall with worker age.  We test these implications by matching data on potential UI replacement rates to asset holdings in the Survey of Income and Program Participation (SIPP).  Our empirical results are quite consistent with the predictions of the model.  We find that raising the replacement rate for UI by 10 percentage points lowers financial asset holdings by 1.4 to 5.6%, so that UI crowds out up to one-half of private savings for the typical unemployment spell.  We also find that this effect is stronger for those facing higher unemployment risk and weaker for older workers.
ER  -