Optimal Unemployment Benefits in the Pandemic

18 Pages Posted: 29 Jun 2020

See all articles by Kurt Mitman

Kurt Mitman

Stockholm University; Centre for Economic Policy Research (CEPR)

Stanislav Rabinovich

University of North Carolina (UNC) at Chapel Hill

Multiple version iconThere are 2 versions of this paper

Date Written: June 2020

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 unem- ployment 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.

Keywords: COVID-19, Epidemic, optimal policy, Unemployment insurance

JEL Classification: E6, H1, J65

Suggested Citation

Mitman, Kurt and Rabinovich, Stanislav, Optimal Unemployment Benefits in the Pandemic (June 2020). Available at SSRN: https://ssrn.com/abstract=3638019

Kurt Mitman (Contact Author)

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stanislav Rabinovich

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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