NCPA Economic Issues - Unemployment Insurance Reduces Savings Rate

Saving and Investment

Unemployment Insurance Reduces Savings Rate

A recent study demonstrates that workers tend to save less when they know they can depend on unemployment insurance. The study, by the National Bureau of Economic Research, also found that workers at higher risk of losing their jobs save less than those who are more secure.

Nationwide, unemployment insurance replaces an average of about 45% of what people earn before they lose their jobs.
Benefits usually run for about six months, but these figures vary from state to state.
If unemployment benefits were not available, the median asset-to-income ratio for workers age 25-64 would be 3.61 - $361 of savings for every $100 in income.
An increase in the risk of unemployment from 2% to 4% cuts the asset-to-income ratio for the median worker by an additional 15%.

Unemployment insurance is not the only government program which discourages savings. It has been estimated that Social Security and Medicare cut the overall level of private savings by 60%.
Source: Perspective, "Undercutting Savings, " Investor's Business Daily, October 17, 1995.

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