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Unemployment Insurance during a Pandemic

Jun Nie () and Zoe Xie

No RWP 20-07, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: The CARES Act implemented in response to the COVID-19 crisis dramatically increased the generosity of unemployment insurance (UI) benefits, triggering concerns about substantial effects on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of the CARES Act UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment but also reduce infection and save lives. Economic shutdown policies further amplify these effects of UI policies. Quantitatively, the CARES UI policies raise unemployment by an average of 3.7 percentage points over April to December 2020, but also reduce cumulative death by 4.7 percent. Eligibility expansion and the extra $600 increase in benefit level account for over 90 percent of the total effects, while the 13-week benefit duration extension plays a much smaller role. Overall, UI policies improve the welfare of workers and reduce the welfare of non-workers, both young and old.

Keywords: COVID-19; Unemployment insurance; CARES Act; Search and matching models (search for similar items in EconPapers)
JEL-codes: E24 J64 J65 (search for similar items in EconPapers)
Pages: 53
Date: 2020-08-06
New Economics Papers: this item is included in nep-dge, nep-ias, nep-lab and nep-mac
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Working Paper: Unemployment Insurance during a Pandemic (2020) Downloads
Working Paper: Unemployment Insurance during a Pandemic (2020) Downloads
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DOI: 10.18651/RWP2020-07

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