Association for Public Policy Analysis & Management

Financial transfers provided to individuals from friends and family members in times of need are difficult to measure, yet the role of private, informal assistance in determining economic outcomes is important to identify. Private transfers could serve as a source of insurance for households, and thus possibly enable consumption smoothing, change savings or search behavior, or alter incidence of public insurance programs. In this paper, I use longitudinal data from the Panel Study of Income Dynamics (PSID) to measure the extent to which an unemployment spell increases the likelihood a young worker receives a cash transfer from family. Using within-person variation in unemployment and cash transfer receipt, I find that unemployment nearly doubles the probability a young worker receives financial assistance from their family. I then use the cross-state and cross-year variation in public unemployment insurance eligibility to evaluate the relationship between the informal private insurance flowing to young unemployed workers and its public counterpart. Eligibility for public benefits reduces the likelihood of receiving family transfers by nearly half, which suggests that the trend towards stricter UI eligibility and declining public benefits are partially absorbed by family networks. I discuss the possible distributional consequences of shifting insurance provision from public to private sources, given the correlated risk of unemployment within family networks.