Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223831
Authors: 
Mitman, Kurt
Rabinovich, Stanislav
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13389
Abstract: 
How should unemployment benefits vary in response to the economic crisis induced by the COVID-19 pandemic? We answer this question by computing the optimal unemployment insurance response to the COVID-induced recession.We compare the optimal policy to the provisions under the CARES Act—which substantially expanded unemployment insurance and sparked an ongoing debate over further increases—and several alternative scenarios. We find that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen — despite unemployment remaining high. We also find that the $600 UI supplement payment implemented under CARES was close to the optimal policy. Extending this UI supplement for another six months would hamper the recovery and reduce welfare. On the other hand, a UI extension combined with a re-employment bonus would further increase welfare compared to CARES alone, with only minimal effects on unemployment.
Subjects: 
COVID-19
epidemic
unemployment insurance
optimal policy
JEL: 
J65
E6
H1
Document Type: 
Working Paper

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