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Unemployment Insurance during a Pandemic

Lei Fang (), Jun Nie () and Zoe Xie

No 2020-13a, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: The CARES Act implemented in response to the COVID-19 crisis dramatically increases the generosity of unemployment insurance (UI) benefits, triggering concerns about its substantial impact on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of CARES UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment, but they also reduce infection and save lives. Shutdown policies and infection risk further amplify these effects of UI policies. Quantitatively, the CARES UI policies raise average unemployment by 3.8 percentage points out of a total expected increase of 11 percentage points over April to December 2020 but also reduce cumulative deaths by 4.9 percent. Eligibility expansion and the extra $600 increase in benefit levels are both important for the effects.

Keywords: COVID-19; CARES Act; unemployment insurance; search and matching (search for similar items in EconPapers)
JEL-codes: E24 J64 J65 (search for similar items in EconPapers)
Pages: 43
Date: 2020-07-31
New Economics Papers: this item is included in nep-dge, nep-hea, nep-ias and nep-mac
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Published in 2020

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:89445

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DOI: 10.29338/wp2020-13a

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