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Labor market policies during an epidemic

Author

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  • Birinci, Serdar
  • Karahan, Fatih
  • Mercan, Yusuf
  • See, Kurt

Abstract

We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The small share of payroll subsidies is sufficient to preserve high-productivity jobs, but it leaves room for social assistance to workers who face inevitable job loss.

Suggested Citation

  • Birinci, Serdar & Karahan, Fatih & Mercan, Yusuf & See, Kurt, 2021. "Labor market policies during an epidemic," Journal of Public Economics, Elsevier, vol. 194(C).
  • Handle: RePEc:eee:pubeco:v:194:y:2021:i:c:s0047272720302127
    DOI: 10.1016/j.jpubeco.2020.104348
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Health > Distancing and Lockdown > Measurement and effect on mobility

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    Cited by:

    1. Corina Boar & Simon Mongey, 2020. "Dynamic Trade-offs and Labor Supply Under the CARES Act," NBER Working Papers 27727, National Bureau of Economic Research, Inc.
    2. Peter Ganong & Fiona Greig & Max Liebeskind & Pascal Noel & Daniel Sullivan & Joseph Vavra, 2021. "Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data," Working Papers 2021-19, Becker Friedman Institute for Research In Economics.
    3. Wei Dong & Geoffrey Dunbar & Christian Friedrich & Dmitry Matveev & Romanos Priftis & Lin Shao, 2021. "Complementarities Between Fiscal Policy and Monetary Policy—Literature Review," Discussion Papers 2021-4, Bank of Canada.
    4. Lei Fang & Jun Nie & Zoe Xie, 2020. "Unemployment Insurance during a Pandemic," FRB Atlanta Working Paper 2020-13, Federal Reserve Bank of Atlanta.
    5. Dergiades, Theologos & Milas, Costas & Panagiotidis, Theodore, 2022. "Unemployment claims during COVID-19 and economic support measures in the U.S," Economic Modelling, Elsevier, vol. 113(C).
    6. Yahong Zhang, 2022. "Unemployment Benefits and Wage Subsidies -- Effects of Labour Market Policies during a Pandemic," Working Papers 2203, University of Windsor, Department of Economics, revised Sep 2022.
    7. Casey B. Mulligan, 2021. "The Backward Art of Slowing the Spread? Congregation Efficiencies during COVID-19," NBER Working Papers 28737, National Bureau of Economic Research, Inc.
    8. Acedański, Jan, 2021. "Optimal lockdown policy during the election period," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 102-117.
    9. Mitman, Kurt & Rabinovich, Stanislav, 2020. "Optimal Unemployment Benefits in the Pandemic," IZA Discussion Papers 13389, Institute of Labor Economics (IZA).
    10. Yuki Uemura, 2022. "Job Search Intensity and Wage Rigidity in Business Cycles," KIER Working Papers 1078, Kyoto University, Institute of Economic Research.
    11. Marinescu, Ioana & Skandalis, Daphné & Zhao, Daniel, 2021. "The impact of the Federal Pandemic Unemployment Compensation on job search and vacancy creation," Journal of Public Economics, Elsevier, vol. 200(C).
    12. Mitman, Kurt & Rabinovich, Stanislav, 2021. "Whether, when and how to extend unemployment benefits: Theory and application to COVID-19," Journal of Public Economics, Elsevier, vol. 200(C).
    13. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," TEPP Working Paper 2021-01, TEPP.
    14. Luciana C. Fiorini & Wilfredo L. Maldonado, 2022. "Labor Supply in Pandemics Environments: An Aggregative Games Approach," Working Papers, Department of Economics 2022_18, University of São Paulo (FEA-USP).
    15. Sewon Hur, 2020. "The Distributional Effects of COVID-19 and Optimal Mitigation Policies," Globalization Institute Working Papers 400, Federal Reserve Bank of Dallas, revised 12 May 2022.
    16. Wei Cui & Jeffrey Hicks & Max Norton, 2022. "How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1321-1347, October.

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    More about this item

    Keywords

    COVID-19; Fiscal policy; Labor productivity; Unemployment; Job search;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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