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Hutchins Roundup: Medicaid expansion, unemployment insurance and mortgage defaults, and more

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Studies in this week’s Hutchins Roundup find that the 2014 Medicaid expansion increased coverage and reduced out-of-pocket spending for near-poor, non-elderly adults, generous unemployment insurance prevents foreclosures and protects home values, and more.

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The Medicaid expansion increased coverage and reduced out-of-pocket spending for near-poor, non-elderly adults

Under the 2014 Medicaid expansion, near-poor, non-elderly adults in several states became eligible for Medicaid; similar persons in non-participating states could only receive tax credits to purchase private health insurance plans, which have significantly higher out-of-pocket costs. Fredric Blavin at the Urban Institute and co-authors find that for near-poor, non-elderly adults, living in an expansion state was associated with a 4.5 percentage point reduction in the probability of being uninsured, a $344 decline in average total out-of-pocket spending, and a 4 percentage point reduction in the probability of spending more than 10 percent of income on health costs.

Generous unemployment insurance prevents foreclosures and protects home values

Exploiting the variation in unemployment insurance (UI) generosity across states and over time, Joanne Hsu of the Federal Reserve Board and David Matsa and Brian Melzer of Northwestern University find that more generous UI benefits decrease the frequency of mortgage defaults. Specifically, the expansion of UI during the Great Recession averted about 1.3 million foreclosures between 2008 and 2013, and reduced delinquency even among high-debt homeowners who had an incentive to strategically default. The decline in foreclosures reduced the net cost of the UI extension by about one-sixth, the authors estimate, as increases in UI payments were offset by smaller losses for government-sponsored mortgage companies. In addition, they find that in counties with more generous UI benefits, home prices were less likely to fall when unemployment increased, suggesting that UI extensions helped stabilize housing markets.

Firm employment has become less responsive to productivity shocks, and may explain the declining rate of job reallocation

There are two potential explanations for why the rate of workers moving from shrinking to expanding firms (job reallocation) has declined in the United States since 2000. First, the frequency and magnitude of business-specific productivity shocks might have decreased, reducing the benefits of reallocation. Second, increases in labor adjustment costs might have made businesses less responsive to shocks. Presenting several stylized facts from business-level data between 1979 and 2013, Ryan Decker from the Federal Reserve Board and colleagues argue that slowed job reallocation is due to rising adjustment frictions rather than lower variations in productivity shocks. They show that the variation of productivity within industries has actually increased over the past several decades, while the responsiveness of employment growth to business-level productivity has weakened, particularly for young firms in the high-tech sector. They find that the decline in responsiveness since 2000 has exerted a significant drag on aggregate productivity.

Chart of the week: U.S. monthly crude oil production highest since 1970

chart 02.06.2018

Quote of the week:

“Central banks need to safeguard payment systems. To date, Bitcoin is not functional as a means of payment, but it relies on the oxygen provided by the connection to standard means of payments and trading apps that link users to conventional bank accounts…central banks cannot allow such tokens to rely on much of the same institutional infrastructure that serves the overall financial system and freeload on the trust that it provides,” says Augustin Carstens, general manager of the Bank for International Settlements.

“Authorities should…provide a level playing field to all participants in financial markets (banks and non-banks alike), while at the same time fostering innovative, secure and competitive markets. In this context, this means, among other things, ensuring that the same high standards that money transfer and payment service providers have to meet are also met by Bitcoin-type exchanges. It also means ensuring that legitimate banking and payment services are only offered to those exchanges and products that meet these high standards. To date, many judge that, given cryptocurrencies’ small size and limited interconnectedness, concerns about them do not rise to a systemic level. But if authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability. Most importantly, the meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust. Private digital tokens masquerading as currencies must not subvert this trust. As history has shown, there simply is no substitute.”

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