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

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  • Robert G. Valletta
  • Mary Yilma

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.

Suggested Citation

  • Robert G. Valletta & Mary Yilma, 2024. "Enhanced Unemployment Insurance Benefits in the United States during COVID-19: Equity and Efficiency," Working Paper Series 2024-15, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:98312
    DOI: 10.24148/wp2024-15
    Note: First version: November 20, 2023. Minor revisions: December 2023, May 2024
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    1. Jesse Rothstein & Robert G. Valletta, 2017. "Scraping by: Income and Program Participation After the Loss of Extended Unemployment Benefits," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 36(4), pages 880-908, September.
    2. Henry S. Farber & Robert G. Valletta, 2015. "Do Extended Unemployment Benefits Lengthen Unemployment Spells?: Evidence from Recent Cycles in the U.S. Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 50(4), pages 873-909.
    3. Couch, Kenneth A. & Fairlie, Robert W. & Xu, Huanan, 2020. "Early evidence of the impacts of COVID-19 on minority unemployment," Journal of Public Economics, Elsevier, vol. 192(C).
    4. Kory Kroft & Matthew J. Notowidigdo, 2016. "Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 1092-1124.
    5. Ganong, Peter & Noel, Pascal & Vavra, Joseph, 2020. "US unemployment insurance replacement rates during the pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
    6. Larrimore, Jeff & Mortenson, Jacob & Splinter, David, 2022. "Earnings shocks and stabilization during COVID-19," Journal of Public Economics, Elsevier, vol. 206(C).
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    8. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    9. Henry S. Farber & Jesse Rothstein & Robert G. Valletta, 2015. "The Effect of Extended Unemployment Insurance Benefits: Evidence from the 2012-2013 Phase-Out," American Economic Review, American Economic Association, vol. 105(5), pages 171-176, May.
    10. Robert Valletta, 2014. "Recent extensions of U.S. unemployment benefits: search responses in alternative labor market states," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-25, December.
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    12. Mary C. Daly & Robert G. Valletta, 2006. "Inequality and Poverty in United States: The Effects of Rising Dispersion of Men's Earnings and Changing Family Behaviour," Economica, London School of Economics and Political Science, vol. 73(289), pages 75-98, February.
    13. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    14. Kyle Coombs & Arindrajit Dube & Calvin Jahnke & Raymond Kluender & Suresh Naidu & Michael Stepner, 2022. "Early Withdrawal of Pandemic Unemployment Insurance: Effects on Employment and Earnings," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 85-90, May.
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    More about this item

    Keywords

    unemployment insurance; covid19; inequality; income support; job search;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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