We show that the largest increase in unemployment benefits in U.S. history had large spending impacts and small job-finding impacts. This finding has three implications. First, increased benefits were important for explaining aggregate spending dynamics—but not employment dynamics—during the pandemic. Second, benefit expansions allow us to study the MPC of normally low liquidity households in a high-liquidity state. These households still have high MPCs. This suggests a role for permanent behavioral characteristics, rather than just current liquidity, in driving spending behavior. Third, the mechanisms driving our results imply that temporary benefit supplements are a promising countercyclical tool.

More on this topic

BFI Working Paper·Feb 4, 2025

Local GDP Estimates Around the World

Esteban Rossi-Hansberg and Jialing Zhang
Topics: COVID-19, Economic Mobility & Poverty
BFI Working Paper·Jan 21, 2025

Effects of Unemployment Insurance for Self-Employed and Marginally-Attached Workers

Emilie Jackson, Dmitri Koustas, and Andrew Garin
Topics: Employment & Wages
BFI Working Paper·Nov 14, 2024

Assortative Matching and Wages: The Role of Selection

Katarína Borovičková and Robert Shimer
Topics: Employment & Wages