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

Author

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  • Guido Matias Cortes

    (York University)

  • Eliza C. Forsythe

    (University of Illinois, 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 Unemployment Insurance (UI) provisions in the Coronavirus Aid, Relief, and Economic Security (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

  • Guido Matias Cortes & Eliza C. Forsythe, 2020. "Impacts of the Covid-19 Pandemic and the CARES Act on Earnings and Inequality," Upjohn Working Papers 20-332, W.E. Upjohn Institute for Employment Research.
  • Handle: RePEc:upj:weupjo:20-332
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    2. 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).
    3. Bossavie,Laurent Loic Yves & Garrote Sanchez,Daniel & Makovec,Mattia & Ozden,Caglar, 2021. "Occupational Hazards : Migrants and the Economic and Health Risks of COVID-19 in Western Europe," Policy Research Working Paper Series 9873, The World Bank.
    4. Nayga, Jr., Rodolfo M. & Valizadeh, Pourya & Melo, Grace, 2022. "SNAP and well-being of low-income households with children before and during the pandemic," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322184, Agricultural and Applied Economics Association.
    5. Kosteas, Vasilios D. & Renna, Francesco & Scicchitano, Sergio, 2022. "Covid-19 and Working from Home: toward a "new normal"?," GLO Discussion Paper Series 1013, Global Labor Organization (GLO).
    6. Bayer, Christian & Born, Benjamin & Luetticke, Ralph & Müller, Gernot, 2020. "The Coronavirus Stimulus Package: How large is the transfer multiplier?," CEPR Discussion Papers 14600, C.E.P.R. Discussion Papers.
    7. Rodríguez-Planas, Núria, 2022. "Hitting where it hurts most: COVID-19 and low-income urban college students," Economics of Education Review, Elsevier, vol. 87(C).
    8. Larrimore, Jeff & Mortenson, Jacob & Splinter, David, 2022. "Earnings shocks and stabilization during COVID-19," Journal of Public Economics, Elsevier, vol. 206(C).
    9. 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.
    10. 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).
    11. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," TEPP Working Paper 2021-01, TEPP.
    12. 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).
    13. 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.

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    More about this item

    Keywords

    Covid-19; employment; earnings replacement; unemployment insurance CARES Act; distributional impacts;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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