Job Market Paper

¶ Paper Information

Title

“How much did Bonus Unemployment Insurance Payments During the COVID Pandemic Depress Aggregate Employment?”

pdf link

¶ Abstract

During the COVID-19 pandemic, the number of Unemployment Insurance (UI) benefit recipients rose to unprecedented levels. This spike in benefits was especially dramatic for the number of recipients collecting partial benefits–UI benefits earned while working part time—which doubled from around 8% of total UI recipients pre-pandemic to 16% in early 2021. This rise coincided with some key temporary changes to the UI program, most prominently the Federal Pandemic Unemployment Compensation (FPUC), which paid a fixed $600 bonus to all workers collecting any amount of UI benefits. The FPUC induced a substantial cliff in disposable income for many workers, such that returning to full-time or near-full-time work would result in a loss of hundreds of dollars of weekly income, compared to working part-time just under the threshold required to collect benefits. This paper seeks to understand the effect this program had on aggregate employment and underemployment. To that end, I construct a job search model with moral hazard in which workers have the option to work part-time (even when they have full time job offers) and collect partial UI benefits. I calibrate this model to the pre-pandemic and then study the effects during the pandemic, using it to quantify the extent to which this newly introduced incentive discouraged workers from returning to full-time work.