Unemployment Insurance during a Pandemic
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.
Status: Published in 2020
File(s): File format is application/pdf https://www.frbatlanta.org/-/media/documents/research/publications/wp/2020/07/31/13-unemployment-insurance-during-a-pandemic.pdf
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta Working Paper
Publication Date: 2020-07-31