Working Paper

UI Generosity and Job Acceptance: Effects of the 2020 CARES Act


Abstract: To provide relief to the U.S. labor market following the onset of the COVID-19 pandemic, the CARES Act granted an extra $600 per week in UI benefit payments from late March through July 2020. This unprecedented increase in UI generosity raised concern that UI recipients would be largely unwilling to accept job offers, slowing the labor market recovery. Job acceptance decisions weigh the value of a job against remaining unemployed. A reservation level of benefit payments exists in this dynamic decision problem at which an individual is indifferent between accepting and refusing an offer. This reservation benefit is a simple statistic summarizing the decision problem conditional on the perceived state of the labor market and the weeks of Unemployment Insurance (UI) compensation remaining. Estimating the reservation benefit for a wide range of US workers suggests few would turn down an offer to return to work at the previous wage under the CARES Act expanded UI payments. Direct empirical analysis of labor force transitions using matched Current Population Survey (CPS) data, linked to annual earning records from the CPS income supplement to form UI replacement rates, shows moderate disincentive effects of the $600 supplemental payments on job finding rates; this empirical framework also suggests small effects of the $300 weekly UI supplement available during 2021.

Keywords: Unemployment; unemployment insurance; job acceptance; COVID-19; CARES Act;

JEL Classification: J64; J65;

https://doi.org/10.24148/wp2021-13

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2021-05-28

Number: 2021-13

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