This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we fnd that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefts and costs, the deadweight losses avoided from preventing mortgage defaults.
ASJC Scopus subject areas
- Economics and Econometrics