Extending Unemployment Benefits During The Recession Prevented 1.4 Million Foreclosures

Bryce Covert

Bryce Covert Economic Policy Editor, Think Progress

Extending Unemployment Benefits During The Recession Prevented 1.4 Million Foreclosures

Extending unemployment insurance during the recession didn’t just give the unemployed some extra income, but actually prevented millions from being foreclosed on, according to a new study from Joanne W. Hsu, David A. Matsa, and Brian T. Melzer.

Given that different states have different amounts they’ll pay out in unemployment benefits — in 2011 it ranged from $6,000 in Mississippi to $28,000 in Massachusetts — the researchers looked at what impact more generous benefits had on mortgage delinquency. They found that for every $1,000 extra in maximum benefits, the likelihood that an unemployed worker’s mortgage would go into delinquency declines by 25 basis points. Getting benefits for a longer period has a similar effect, as each additional week decreases the chance of delinquency by 34 basis points. “Based on this variety of tests, we conclude that the estimated effect of UI generosity is causal,” they write, meaning that bigger checks reduce the chances of going into delinquency directly.

They also found that the effect isn’t just a temporary forestalling of an inevitable foreclosure, but that it has a lasting impact on keeping people in their homes. “The effect seems to be long term,” they write, “as UI [unemployment insurance] benefits not only mitigate loan delinquency, but also reduce homeowner relocations and evictions.” Each additional $1,000 in benefits reduces the chance of an unemployed person’s mortgage going into default by 2.4 to 11 basis points. “We find that UI helps not only to postpone delinquency but also to keep laid off homeowners in their homes,” they conclude.

Extrapolating out from their findings, the authors estimate that the expansions in the unemployment benefits program during the recession prevented about 1.4 million foreclosures.

The research shows that bigger unemployment benefit checks have a positive effect for the people who receive them, proving that “[h]aving a source of income following job loss can enable households with credit obligations, such as mortgage payments, to continue making loan payments rather than defaulting,” as they write. The other option would have been that bigger benefits reduced the incentive for recipients to look for work, prolonging their unemployment spell and increasing the risk of default, but that’s not what their research shows.

Other research from the Government Accountability Office in 2010 comports with the new study, filling in the picture on the other side for people who don’t get unemployment benefits. Their poverty rate spiked and 40 percent had incomes below 200 percent of the poverty line. More than a third relied on government programs, while others relied on family members or savings.

The new research cuts against one argument in favor of letting the federal long-term unemployment benefits program lapse, as it did in December, which is that it would take away a cushion keeping people from job hunting and push more to get jobs. There’s other evidence that disproves that view. In Illinois, more than 80 percent of the long-term unemployed still had no income two months after being cut off from benefits.

And North Carolina has served as a testing ground, as it was cut off from the federal program months before it lapsed. There is no evidence that the cutoff helped the state’s labor force and in fact it is now experiencing the largest contraction in its workforce ever.


This has been reposted from Think Progress.

Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media. Follow her on Twitter @brycecovert

Posted In: Allied Approaches, From the News

Union Matters

Powering America

From the USW

From tumbledown bridges to decrepit roads and failing water systems, crumbling infrastructure undermines America’s safety and prosperity. In coming weeks, Union Matters will delve into this neglect and the urgent need for a rebuilding campaign that creates jobs, fuels economic growth and revitalizes communities.

Fierce thunderstorms, heavy snows and unusually powerful hurricanes ravaged America’s fragile power grid and plunged millions into darkness this year.

And even as these natural disasters wreaked havoc across the country, COVID-19 stay-at-home orders sparked a surge in residential electrical demand, placing new stress on a failing system.

A long-overdue overhaul of the nation’s electrical infrastructure would not only ensure America continues functioning during a crisis but help to reinvigorate the pandemic-shattered economy.

Built in the 1950s and 60s, most of America’s electricity transmission and distribution infrastructure lives on borrowed time. Engineers never designed it to withstand today’s increasingly frequent and catastrophic storms fueled by climate change, let alone the threats posed by hackers and terrorists.

To ensure a reliable power supply for homes, schools and businesses, America needs to invest in a more resilient, higher capacity grid.

That means either burying electrical lines or insulating above-ground wires and replacing wooden utility poles with structures made of steel or concrete. Other strategies include creating a battery-storage system to provide backup power, building coastal barriers to protect infrastructure against storm surge and further diversifying into wind and solar production.

Also, a shift toward more localized generation and distribution networks would limit the impact of any one power outage.

Making these upgrades with U.S.-made materials and labor will both stimulate the economy and protect national security. American steelworkers, tradespeople and manufacturing workers have the expertise to build a power grid strong enough to weather whatever storms come America’s way.

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