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RESEARCH Spending after Job Loss from the Great Recession through COVID-19

The Roles of Financial Health, Race, and Policy

The financial consequences of a family experiencing job loss for can vary widely. This report examines factors that drive the spending response during unemployment across households of different characteristics and over time. We leverage an expanded dataset that dates back to 2007, covering over 2 million job loss events and allowing a perspective that spans the Great Recession, the expansion period, and the COVID-19 recession.

Our data show that household characteristics, such as liquidity and race, play a much larger role in explaining the consumption response to job loss than business cycle or local labor market conditions. Low-liquidity households are most prone to sharp spending declines after income drops, suggesting that targeting can be a useful way to support current consumption levels for financially vulnerable households. We also find that the tendency to spend out of unemployment insurance (UI) payments is fairly stable over disparate economic conditions. This implies that countercyclical payment levels could enhance the role of UI in supporting aggregate demand during recessions, because it channels government stimulus to the people most likely to spend.

The report is organized around four Findings, which are summarized below.

Finding One: UI supplements implemented during COVID-19 prevented spending declines for the majority of people who lost their job, providing valuable support to the economy as overall demand was contracting sharply. This pattern contrasts with the sizable spending cuts observed for households experiencing unemployment in the Great Recession and subsequent expansion.

Finding Two: Estimates of the propensity to spend out of UI payments are relatively stable over different economic environments.

Estimated marginal propensity to consume out of $1 of UI payments

Finding Three: By contrast, we find stark differences in the spending response to income changes across households with different liquidity buffers; households with lower cash balances are more likely to experience sharp spending drops after job loss.

Finding Four: Black and Latinx households cut their spending to a greater extent than White families when faced with job loss, partially explained by their lower cash buffers and indicators of wealth.

Expanded UI benefits during COVID supported income and spending increases for all households regardless of race, but the fixed dollar value of the supplement mattered more for Black and Latinx households, given their lower incomes (see figure below).


Chris Wheat


Fiona Greig

Former Co-President

George Eckerd

Financial Markets Research Lead

Melissa O’Brien

Financial Markets Senior Research Associate

Shantanu Banerjee

Financial Markets Research Associate