Unemployment Benefits and Wage Subsidies -- Effects of Labour Market Policies during a Pandemic

Yahong Zhang

No 2203, Working Papers from University of Windsor, Department of Economics

Abstract: To mitigate the job and income loss due to COVID-19, the Canadian government implemented a variety of programs. Among them, the most significant initiatives include the Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS). In this paper, I use a dynamic general equilibrium model with labour market frictions to examine the effect of these two programs. In the model, a pandemic shock is captured by a combination of an exogenous rise in the separation rate and a decline in matching efficiency. I show that the shock generates a large rise in the unemployment rate and a steep decline in employment, output and consumption. I then use the model to quantify the effect of the two programs, showing that compared to the CERB program, the CEWS program is more effective in mitigating the loss of employment, output and consumption.

Keywords: unemployment; labour market; pandemic (search for similar items in EconPapers)
JEL-codes: H2 J65 J68 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2022-09, Revised 2022-09
New Economics Papers: this item is included in nep-dge, nep-lab and nep-pbe
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http://web2.uwindsor.ca/economics/RePEc/wis/pdf/2203.pdf First version, 2022 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:wis:wpaper:2203

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