Enhanced Unemployment Insurance Benefits in the United States during COVID-19: Equity and Efficiency

Valletta, Robert G.; Yilma, Mary

doi:10.24148/wp2024-15

Working Paper

Enhanced Unemployment Insurance Benefits in the United States during COVID-19: Equity and Efficiency

Abstract: We assess the effects of the historically unprecedented expansion of U.S. unemployment insurance (UI) payments during the COVID-19 pandemic. The adverse economic impacts of the pandemic, notably the pattern of job losses and earnings reductions, were disproportionately born by lower-income individuals. Focusing on household income as a broad measure of well-being, we document that UI payments almost completely offset the increase in household income inequality that otherwise would have occurred in 2020 and 2021. We also examine the impacts of the $600 increase in weekly UI benefit payments, available during part of 2020, on job search outcomes. We find that despite the very high replacement rate of lost earnings for low-wage individuals, the search disincentive effects of the enhanced UI payments were limited overall and smaller for individuals from lower-income households. These results suggest that the pandemic UI expansions improved equity but had limited consequences for economic efficiency.

Keywords: unemployment insurance; covid19; inequality; income support; job search;

JEL Classification: D31; J64; J65;

https://doi.org/10.24148/wp2024-15