Examining the Externality of Unemployment Insurance on Children’s Educational Achievement

Regmi, Krishna (2018). Economic Inquiry


It has been well-documented that unemployment insurance (UI) benefits provide disincentives for recipients to participate in the labor market. Past research has established that UI adversely affects the unemployed individuals’ job search effort and their duration of unemployment. The primary objective of UI is to provide temporary financial assistance to mitigate the adverse effects of job loss on the unemployed. However, less understood is whether UI benefits provided to parents are helpful in shielding their children from negative shocks of job loss, such as loss in earnings and health problems. In this context, this paper examines the role of UI benefits in reducing the adverse effect of parental job loss on children’s educational performance, measured by grade repetition.

This paper uses data from the Survey of Income and Program Participation, which contains a rich set of information about parents’ income and labor force status along with children’s grade retention. In its empirical strategy, this paper compares educational outcomes for children whose parents lost their jobs with children whose parents were employed.

This paper finds that a 1% increase in maximum weekly UI benefits reduces the probability that a child repeats a grade by around 1.1%. The effect is concentrated among children of low- and middle-income families.  This paper carries important policy implications. Generous UI benefits generate positive welfare gains for the children of unemployed workers. As such, UI could be an important tool that helps shield children from the detrimental effects of parental job loss.