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Labor Market Policies During an Epidemic

Author

Listed:
  • Serdar Birinci
  • Fatih Karahan
  • Yusuf Mercan
  • Kurt See

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 relatively small proportion allocated to payroll subsidies is sufficient to preserve high-productivity jobs but this also leaves room for social assistance to workers who face inevitable job losses.

Suggested Citation

  • Serdar Birinci & Fatih Karahan & Yusuf Mercan & Kurt See, 2020. "Labor Market Policies During an Epidemic," Staff Working Papers 20-54, Bank of Canada.
  • Handle: RePEc:bca:bocawp:20-54
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    References listed on IDEAS

    as
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    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Policy responses > Macroeconomic

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    Cited by:

    1. Lei Fang & Jun Nie & Zoe Xie, 2020. "Unemployment Insurance during a Pandemic," FRB Atlanta Working Paper 2020-13, Federal Reserve Bank of Atlanta.
    2. Mitman, Kurt & Rabinovich, Stanislav, 2020. "Optimal Unemployment Benefits in the Pandemic," IZA Discussion Papers 13389, Institute of Labor Economics (IZA).
    3. Sewon Hur, 2020. "The Distributional Effects of COVID-19 and Optimal Mitigation Policies," Globalization Institute Working Papers 400, Federal Reserve Bank of Dallas, revised 23 Oct 2020.
    4. 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.

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    More about this item

    Keywords

    Coronavirus disease (COVID-19); Business fluctuations and cycles; Fiscal policy; Labour markets;
    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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