07 Jun ’22
Research in Brief – Philadelphia Fed’s Bryan Stuart and his co-author estimate the gap between blacks and whites in unemployment insurance and analyze individual characteristics to help explain the divide.
The loss of employment can have considerable negative consequences on consumption, income and even life expectancy.1 In the United States, unemployment insurance is the main buffer against loss of income for people facing job loss.2 But not everyone appreciates this stamp in the same way. A recent study shows that consumption loss due to job displacement among blacks is significantly higher than among whites.3
In their article, “Racial Inequality in Unemployment Insurance Receipt and Take-Up,” Elira Kuka of George Washington University and the National Bureau of Economic Research (NBER) and Bryan Stuart of the Philadelphia Fed advance the existing literature by measuring the unemployment insurance (UI) eligibility and uptake gap between blacks and whites. Providing motivation for their research, they note that “since unemployment insurance is the main form of social assistance to job losers, racial disparities in receipt of unemployment insurance underscore other disadvantages to which faced by black workers”.
As background, the authors report that eligibility for unemployment insurance varies by U.S. state, although the rules generally require individuals to have lost their job involuntarily, worked a minimum amount (often defined in terms income threshold) and are actively seeking employment. . The level of benefits per week also varies by state, depending primarily on previous earnings and the number of dependents. In addition, the duration of benefits depends on the state.
Even if a person is eligible for unemployment insurance, the application process itself can pose obstacles, the authors explain. Although there is no explicit financial cost associated with applying for unemployment benefits, there are significant costs in terms of “time and energy”, they argue, which could deter people who need it most.4 Study shows that black people who have lost their jobs are more likely to believe they are not eligible for unemployment insurance benefits, are often uninformed about benefit levels and often do not apply for benefits due to of the “hassle” involved.5 Kuka and Stuart note that because blacks have lower average income and wealth as well as higher unemployment rates than whites, blacks, on average, have a disproportionate need for unemployment insurance.
Using longitudinal survey data on employment history, unemployment insurance benefits, and unemployment insurance regulation at the state level (1986-2015), the authors measure differences in eligibility and use of unemployment insurance benefits by blacks and whites.6 In addition, they estimate a series of regressions to determine whether individual characteristics help explain the racial gap in unemployment insurance.
The authors find that 37% of white people received unemployment insurance benefits in the first year after losing their job, compared to 28% of black people. They attribute 80% of this racial gap in UI benefits to differences in UI uptake rather than differences in eligibility. Focusing on those eligible for unemployment insurance, they find that 55% of white people received unemployment insurance benefits, compared to 42% of black people. Both discrepancies indicate that blacks are almost 25% less likely to receive unemployment insurance benefits than whites. Moreover, over the sample period, racial gaps in unemployment insurance were stable, which the authors attribute to persistent economic and social factors.
Kuka and Stuart also find that, among all individuals, unemployment insurance use is higher among those with higher pre-unemployment earnings, those with more children, and those who belong to a union. They also find higher take-up among those for whom unemployment insurance benefits replace more of their lost income.
Black people’s lower average earnings before unemployment are the most important factor explaining the racial gap in unemployment insurance participation, the authors report, followed by living in the South. (Black people are much more likely to live in the South, where unemployment insurance use is lower.) Combined, lower earnings before unemployment and residing in the South account for about half of the total racial participation gap. On regional disparities in the use of unemployment insurance, the authors refer to the historical experience of the United States, explaining that “the legacy of Jim Crow policies in the South could affect the use of unemployment insurance. unemployment insurance today.
The authors calculate that among those eligible for unemployment insurance, raising the participation rate of blacks to the level of white individuals would increase the share of black individuals who receive unemployment insurance benefits by 14 percentage points and increase their average monthly unemployment insurance benefit of $1,299. Putting the size of the racial gap in unemployment insurance use into perspective, among all eligible people, black people earn an average of $12,657 less per year in unemployment insurance benefits than white people. (i.e. $28,055 for blacks versus $40,712 for whites). The authors comment that “the magnitude of the gap between blacks and whites in the receipt and participation of unemployment insurance benefits thus highlights their economic importance”.
In summary, Kuka and Stuart show that racial differences in UI receipt are large, stable over 30 years, and driven by differences in UI take-up rates rather than differences in eligibility for unemployment insurance. The authors suggest that socioeconomic status gaps and the long history of discrimination in the public and private sectors contribute to racial gaps in unemployment insurance eligibility and take-up.