Dynamic Trade-offs and Labor Supply under the CARES Act

16 Pages Posted: 24 Aug 2020

See all articles by Corina Boar

Corina Boar

New York University (NYU) - Department of Economics

Simon Mongey

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: August 19, 2020

Abstract

The CARES Act resulted in many unemployed workers receiving benefits that exceeded wages at their previous job. Given this, would an unemployed worker reject an offer to return to their former job at the same wage? Qualitatively, we provide a very simple dynamic model that incorporates four reasons the answer could be ‘no’: (i) the temporary nature of the CARES Act, (ii) uncertainty that their return-to-work offer might expire, (iii) search frictions, and (iv) wage losses out of unemployment in a recession. Quantitatively, when evaluated under empirically relevant parameters, we find it unlikely a worker would reject an offer to return to work at the same wage. We show special cases where this is not true and relate these to anecdotal evidence.

Suggested Citation

Boar, Corina and Mongey, Simon, Dynamic Trade-offs and Labor Supply under the CARES Act (August 19, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-112, Available at SSRN: https://ssrn.com/abstract=3677311 or http://dx.doi.org/10.2139/ssrn.3677311

Corina Boar

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

Simon Mongey (Contact Author)

University of Chicago ( email )

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