Trade-offs Between Moral Hazard and Health: The Effect of Income Support Programs on Job Search and COVID-19

Abstract

This study examines the trade-offs between the moral hazard (caused by changes in job search effort and workplace mobility), and the COVID-19 cases and mortality growth rates effects of Income support programs (ISPs). To identify ISPs causal effect, I use the variation in the timing of their introductions across countries and implement a difference-in-difference and multi-event analysis method. I find that ISPs led to a 4.4-8.29 percentage point reduction in workplace mobility and caused no statistically significant change in job search effort levels. ISPs on the other hand led to a 21.8-47.7 percentage points reduction the COVID-19 case growth rate and a 17.1-29.7 percentage points reduction in COVID-19 mortality growth rates . Using the event analysis estimates, I simulated the counterfactual job search effort, workplace mobility, and the number of COVID-19 cases and mortality without income support programs. The average global job search effort and workplace mobility without ISPs would have been 16.83 and 9.26 percent higher than the observed mean job search effort and workplace mobility. However, these would have come at the expense of 3.69 million and 166, 690 additional COVID-19 cases and mortality than the cases and deaths registered by May 15th.

Keywords: COVID19, Income support, Unemployment benefit

JEL Classification: I1, I3, J3