Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241136 
Year of Publication: 
2020
Series/Report no.: 
Staff Report No. 943
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The small share of payroll subsidies is sufficient to preserve high-productivity jobs, but it leaves room for social assistance to workers who face inevitable job loss.
Subjects: 
COVID-19
fiscal policy
labor productivity
unemployment
job search
JEL: 
E24
E62
J64
Document Type: 
Working Paper

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