Lei Fang, Jun Nie, and Zoe Xie
Working Paper 2020-13c
July 2020 (revised June 2022)

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Abstract: We quantitatively evaluate the impact of the CARES Act's unemployment insurance (UI) policy on unemployment in 2020. More generous UI policies lead to higher unemployment but save lives by reducing infections in the workplace. We find that the CARES UI policy raised average unemployment by 1.61 percentage points from April 2020 to December 2020 and reduced cumulative deaths by 2.09 percent, with the policy’s interaction with shutdown and COVID infection risk playing a quantitatively important role. We also find that CARES UI’s impact on unemployment is heterogeneous: it is larger in sectors where jobs cannot be performed remotely, and it is hump-shaped over income. Decomposing the total effect into contributions by the three CARES UI components, we find that the interaction among the components accounts for one-third of the total policy effect.

JEL classification: J64, J65, E24

Key words: labor market dynamics, CARES Act, unemployment insurance, search and matching


First draft: July 30, 2020. This paper was previously titled "Unemployment Insurance in a Pandemic." The authors thank seminar participants at the Atlanta Fed brown bag luncheons, University of Nebraska Omaha, Texas A&M University, New Hampshire University, Virtual East Asia Macroeconomics Seminar Series, Clemson University, and Indiana University for comments. The authors are especially grateful to Toni Braun, Andy Glover, Federico Mandelman, and Juan Rubio-Ramirez for suggestions. They thank Oske Yang for excellent assistance on the CPS data. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Lei Fang, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309; Jun Nie, Research Department, Federal Reserve Bank of Kansas City, 1 Memorial Drive, Kansas City, MO 64198; or Zoe Xie, World Bank and Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309.

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