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The outbreak of COVID-19 led to widespread shutdowns in March and April 2020 and an historically unprecedented increase in the generosity of unemployment insurance (UI) through the CARES Act. This article summarizes the key policy-relevant results from Fang, Nie, and Xie (2020), whose research examines the interactions of virus infection risk, shutdown policy, and increased UI generosity.

Key findings:

  1. Generous UI policies create disincentives and reduce employment, but implemented during a pandemic, the policies potentially reduce infections by encouraging people to stay at home.
  2. The CARES Act in the United States substantially increases the UI replacement ratio for individual unemployed workers and raises the UI coverage ratio. We find that both aspects contribute to an increase in the average unemployment rate of 3.8 percentage points and a potential reduction in cumulative COVID-related deaths by 4.9 percent.
  3. Further extensions of the CARES Act component would potentially have an even larger impact, especially after the economy has reopened.

Center Affiliation: Center for Human Capital Studies

JEL classification: J64, J65, E24

Key words: COVID-19, CARES Act, unemployment insurance

https://doi.org/10.29338/ph2020-16Off-site link

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