Labor Market Policies During an Epidemic

Serdar Birinci, Fatih Karahan, Yusuf Mercan and Kurt See

Staff Working Papers from Bank of Canada

Abstract: We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The relatively small proportion allocated to payroll subsidies is sufficient to preserve high-productivity jobs but this also leaves room for social assistance to workers who face inevitable job losses.

Keywords: Coronavirus disease (COVID-19); Business fluctuations and cycles; Fiscal policy; Labour markets (search for similar items in EconPapers)
JEL-codes: E24 E62 J64 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2020-12
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Labor market policies during an epidemic (2021)
Working Paper: Labor Market Policies During an Epidemic (2020)
Working Paper: Labor Market Policies during an Epidemic (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:20-54

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