Death Without Benefits: Unemployment Insurance, Re-Employment, and the Spread of Covid

Abstract

During a pandemic, unemployment insurance (UI) may have externalities for health. Studying variation across states in UI benefit cuts during summer 2021, using longitudinally linked Current Population Survey data, and controlling for individual and state characteristics, we find that unemployment-employment transitions rise 10 percentage points (42 percent of the untreated mean) in treated states that cut UI early, relative to states maintaining higher benefits. Estimates of hazards and censored regressions imply a benefit elasticity of unemployment duration of 0.5-0.7. Using an instrumental variables strategy, we find sharp covid rises in states with higher re-employment rates because of the UI cuts: case, hospitalization, and death rates are all estimated to more than double. Consistent with a causal interpretation, the differences between treated and other states in re-employment and covid outcomes are negligible prior to treatment, diverge simultaneously with the policy change, and reconverge quickly after the end of the policy difference. Results are robust to controlling for other relevant factors and policies. We estimate that additional wages of $1.1bln received by re-employed workers offset only one-eighth of the UI losses, and, even from a government budget perspective, UI savings are more than offset by increased hospitalization costs of $14.8bln. Increases in illness-related losses in work time can be valued at $1.5bln. Beyond the monetary and morbidity costs of the UI cuts, we estimate additional deaths at 27,000. The results suggest an important role for UI during infectious stages of pandemics that should be considered for future policy design.

Keywords: unemployment, social safety net, covid, community transmission, unemployment insurance

JEL Classification: J65, I18