IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp13643.html
   My bibliography  Save this paper

Impacts of the COVID-19 Pandemic and the CARES Act on Earnings and Inequality

Author

Listed:
  • Cortes, Guido Matias

    (York University, Canada)

  • Forsythe, Eliza

    (University of Illinois at Urbana-Champaign)

Abstract

Using data from the Current Population Survey (CPS), we show that the COVID-19 pandemic led to a loss of aggregate real labor earnings of more than $250 billion between March and July 2020. By exploiting the panel structure of the CPS, we show that the decline in aggregate earnings was entirely driven by declines in employment; individuals who remained employed did not experience any atypical earnings changes. We find that job losses were substantially larger among workers in low-paying jobs. This led to a dramatic increase in inequality in labor earnings during the pandemic. Simulating standard unemployment benefits and UI provisions in the CARES Act, we estimate that UI payments exceeded total pandemic earnings losses between March and July 2020 by $9 billion. Workers who were previously in the bottom third of the earnings distribution received 49% of the pandemic associated UI and CARES benefits, reversing the increases in labor earnings inequality. These lower income individuals are likely to have a high fiscal multiplier, suggesting these extra payments may have helped stimulate aggregate demand.

Suggested Citation

  • Cortes, Guido Matias & Forsythe, Eliza, 2020. "Impacts of the COVID-19 Pandemic and the CARES Act on Earnings and Inequality," IZA Discussion Papers 13643, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13643
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp13643.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mark Gertler & Christopher Huckfeldt & Antonella Trigari, 2020. "Unemployment Fluctuations, Match Quality, and the Wage Cyclicality of New Hires," Review of Economic Studies, Oxford University Press, vol. 87(4), pages 1876-1914.
    2. Marianne Bitler & Hilary W. Hoynes & Diane Whitmore Schanzenbach, 2020. "The Social Safety Net in the Wake of COVID-19," NBER Working Papers 27796, National Bureau of Economic Research, Inc.
    3. Simon Mongey & Laura Pilossoph & Alexander Weinberg, 2021. "Which workers bear the burden of social distancing?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(3), pages 509-526, September.
    4. Couch, Kenneth A. & Fairlie, Robert W. & Xu, Huanan, 2020. "Early evidence of the impacts of COVID-19 on minority unemployment," Journal of Public Economics, Elsevier, vol. 192(C).
    5. Ekaterina S. Jardim & Gary Solon & Jacob L. Vigdor, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State," NBER Working Papers 25470, National Bureau of Economic Research, Inc.
    6. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
    7. Scott R. Baker & R.A. Farrokhnia, 2020. "Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments," Working Papers 2020-55, Becker Friedman Institute for Research In Economics.
    8. Dingel, Jonathan I. & Neiman, Brent, 2020. "How many jobs can be done at home?," Journal of Public Economics, Elsevier, vol. 189(C).
    9. Jeehoon Han & Bruce D. Meyer & James X. Sullivan, 2020. "Income and Poverty in the COVID-19 Pandemic," NBER Working Papers 27729, National Bureau of Economic Research, Inc.
    10. Bruce D. Meyer & James X. Sullivan, 2013. "Consumption and Income Inequality and the Great Recession," American Economic Review, American Economic Association, vol. 103(3), pages 178-183, May.
    11. Michael W. L. Elsby & Gary Solon, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 185-201, Summer.
    12. Béland, Louis-Philippe & Brodeur, Abel & Wright, Taylor, 2020. "The Short-Term Economic Consequences of COVID-19: Exposure to Disease, Remote Work and Government Response," GLO Discussion Paper Series 524, Global Labor Organization (GLO).
    13. Finamor, Lucas & Scott, Dana, 2021. "Labor market trends and unemployment insurance generosity during the pandemic," Economics Letters, Elsevier, vol. 199(C).
    14. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    15. Scott, Dana & Finamor, Lucas, 2020. "Employment Effects of Unemployment Insurance Generosity During the Pandemic," MPRA Paper 102390, University Library of Munich, Germany.
    16. Ganong, Peter & Noel, Pascal & Vavra, Joseph, 2020. "US unemployment insurance replacement rates during the pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
    17. Laura Montenovo & Xuan Jiang & Felipe Lozano Rojas & Ian M. Schmutte & Kosali I. Simon & Bruce A. Weinberg & Coady Wing, 2020. "Determinants of Disparities in Covid-19 Job Losses," NBER Working Papers 27132, National Bureau of Economic Research, Inc.
    18. Tomaz Cajner & Leland D. Crane & Ryan A. Decker & John Grigsby & Adrian Hamins-Puertolas & Erik Hurst & Christopher Johann Kurz & Ahu Yildirmaz, 2020. "The U.S. Labor Market During the Beginning of the Pandemic Recession," Working Papers 2020-58_Revision, Becker Friedman Institute for Research In Economics.
    19. Brigitte C. Madrian & Lars John Lefgren, 1999. "A Note on Longitudinally Matching Current Population Survey (CPS) Respondents," NBER Technical Working Papers 0247, National Bureau of Economic Research, Inc.
    20. Fabrizio Perri & Joe Steinberg, 2012. "Inequality and redistribution during the Great Recession," Economic Policy Paper 12-1, Federal Reserve Bank of Minneapolis.
    21. Guido Matias Cortes & Eliza C. Forsythe, 2020. "The Heterogeneous Labor Market Impacts of the Covid-19 Pandemic," Upjohn Working Papers 20-327, W.E. Upjohn Institute for Employment Research.
    22. Alexander W. Bartik & Marianne Bertrand & Feng Lin & Jesse Rothstein & Matt Unrath, 2020. "Measuring the labor market at the onset of the COVID-19 crisis," NBER Working Papers 27613, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    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 > Economic consequences > Employment and Work
    2. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Household support > Unemployment insurance

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard B. Freeman, 2022. "Planning for the “Expected Unexpected”: Work and Retirement in the U.S. After the COVID-19 Pandemic Shock," NBER Working Papers 29653, National Bureau of Economic Research, Inc.
    2. Zimpelmann, Christian & Gaudecker, Hans-Martin von & Holler, Radost & Janys, Lena & Siflinger, Bettina, 2021. "Hours and income dynamics during the Covid-19 pandemic: The case of the Netherlands," Labour Economics, Elsevier, vol. 73(C).
    3. Larrimore, Jeff & Mortenson, Jacob & Splinter, David, 2022. "Earnings shocks and stabilization during COVID-19," Journal of Public Economics, Elsevier, vol. 206(C).
    4. Fasani, Francesco & Mazza, Jacopo, 2020. "Being on the Frontline? Immigrant Workers in Europe and the COVID-19 Pandemic," IZA Discussion Papers 13963, Institute of Labor Economics (IZA).
    5. Dias, Felipe A & Chance, Joseph, 2021. "COVID-19, Public Charge Rules, and Immigrant Employment in the United States," Institute for Research on Labor and Employment, Working Paper Series qt37f8w4sf, Institute of Industrial Relations, UC Berkeley.
    6. Ainaa, Carmen & Brunetti, Irene & Mussida, Chiara & Scicchitano, Sergio, 2021. "Who lost the most? Distributive effects of COVID-19 pandemic," GLO Discussion Paper Series 829, Global Labor Organization (GLO).
    7. Giovanni Gallo & Michele Raitano, 2020. "SOS incomes: Simulated effects of COVID-19 and emergency benefits on individual and household income distribution in Italy," Working Papers 566, ECINEQ, Society for the Study of Economic Inequality.
    8. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," Working Papers hal-03107369, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Larrimore, Jeff & Mortenson, Jacob & Splinter, David, 2022. "Earnings shocks and stabilization during COVID-19," Journal of Public Economics, Elsevier, vol. 206(C).
    2. Guido Matias Cortes & Eliza C. Forsythe, 2020. "The Heterogeneous Labor Market Impacts of the Covid-19 Pandemic," Upjohn Working Papers 20-327, W.E. Upjohn Institute for Employment Research.
    3. Cortes, Guido Matias & Forsythe, Eliza, 2021. "The heterogenous labour market impact of the COVID-19 pandemic," CLEF Working Paper Series 40, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    4. 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).
    5. Couch, Kenneth A. & Fairlie, Robert W. & Xu, Huanan, 2020. "Early evidence of the impacts of COVID-19 on minority unemployment," Journal of Public Economics, Elsevier, vol. 192(C).
    6. Benzeval, Michaela & Burton, Jonathan & Crossley, Thomas F. & Fisher, Paul & Jäckle, Annette & Low, Hamish & Read, Brendan, 2020. "The idiosyncratic impact of an aggregate shock: the distributional consequences of COVID-19," Understanding Society Working Paper Series 2020-09, Understanding Society at the Institute for Social and Economic Research.
    7. Finamor, Lucas & Scott, Dana, 2021. "Labor market trends and unemployment insurance generosity during the pandemic," Economics Letters, Elsevier, vol. 199(C).
    8. Hensvik, Lena & Le Barbanchon, Thomas & Rathelot, Roland, 2021. "Job search during the COVID-19 crisis," Journal of Public Economics, Elsevier, vol. 194(C).
    9. Patrick Baylis & Pierre‐Loup Beauregard & Marie Connolly & Nicole M. Fortin & David A. Green & Pablo Gutiérrez‐Cubillos & Samuel Gyetvay & Catherine Haeck & Tímea Laura Molnár & Gaëlle Simard‐Duplain , 2022. "The distribution of COVID‐19–related risks," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 172-213, February.
      • Patrick Baylis & Pierre-Loup Beauregard & Marie Connolly & Nicole Fortin & David A. Green & Pablo Gutierrez Cubillos & Sam Gyetvay & Catherine Haeck & Timea Laura Molnar & Gaëlle Simard-Duplain & Henr, 2020. "The Distribution of COVID-19 Related Risks," NBER Working Papers 27881, National Bureau of Economic Research, Inc.
      • Patrick Baylis & Pierre-Loup Beauregard & Marie Connolly & Nicole Fortin & David A. Green & Pablo Gutiérrez-Cubillos & Samuel Gyetvay & Catherine Haeck & Tímea L. Molnár & Gäelle Simard-Duplain & Henr, 2020. "The Distribution of COVID-19 Related Risks," CIRANO Working Papers 2020s-50, CIRANO.
    10. Rebecca Brough & Matthew Freedman & David C. Phillips, 2021. "Understanding socioeconomic disparities in travel behavior during the COVID‐19 pandemic," Journal of Regional Science, Wiley Blackwell, vol. 61(4), pages 753-774, September.
    11. Lea Immel & Florian Neumeier & Andreas Peichl, 2021. "The Unequal Consequences of the Covid-19 Pandemic: Evidence from a Large Representative German Population Survey," CESifo Working Paper Series 9038, CESifo.
    12. Gopi Shah Goda & Emilie Jackson & Lauren Hersch Nicholas & Sarah See Stith, 2021. "The Impact of Covid-19 on Older Workers' Employment and Social Security Spillovers," NBER Working Papers 29083, National Bureau of Economic Research, Inc.
    13. Effrosyni Adamopoulou & Ernesto Villanueva, 2020. "Wage determination and the bite of collective contracts in Italy and Spain: evidence from the metal working industry," Working Papers 2036, Banco de España.
    14. Crossley, Thomas F. & Fisher, Paul & Low, Hamish, 2021. "The heterogeneous and regressive consequences of COVID-19: Evidence from high quality panel data," Journal of Public Economics, Elsevier, vol. 193(C).
    15. Teresa Barbieri & Gaetano Basso & Sergio Scicchitano, 2022. "Italian Workers at Risk During the COVID-19 Epidemic," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(1), pages 175-195, March.
    16. Daniel Schäfer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics working papers 2020-11, Department of Economics, Johannes Kepler University Linz, Austria.
    17. Leslie, Emily & Wilson, Riley, 2020. "Sheltering in place and domestic violence: Evidence from calls for service during COVID-19," Journal of Public Economics, Elsevier, vol. 189(C).
    18. Webster, Allan & Khorana, Sangeeta & Pastore, Francesco, 2021. "The Labour Market Impact of COVID-19: Early Evidence for a Sample of Enterprises from Southern Europe," IZA Discussion Papers 14269, Institute of Labor Economics (IZA).
    19. Shibata, Ippei, 2021. "The distributional impact of recessions: The global financial crisis and the COVID-19 pandemic recession," Journal of Economics and Business, Elsevier, vol. 115(C).
    20. Valentina Rivera & Francisca Castro, 2021. "Between Social Protests and a Global Pandemic: Working Transitions under the Economic Effects of COVID-19," Social Sciences, MDPI, vol. 10(4), pages 1-21, April.

    More about this item

    Keywords

    unemployment insurance; earnings inequality; COVID-19;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp13643. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.