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Unemployment Benefits and Wage Subsidies -- Effects of Labour Market Policies during a Pandemic

Author

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  • Yahong Zhang

    (Department of Economics, University of Windsor)

Abstract

To mitigate the job and income loss due to COVID-19, the Canadian government implemented a variety of programs. Among them, the most significant initiatives include the Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS). In this paper, I use a dynamic general equilibrium model with labour market frictions to examine the effect of these two programs. In the model, a pandemic shock is captured by a combination of an exogenous rise in the separation rate and a decline in matching efficiency. I show that the shock generates a large rise in the unemployment rate and a steep decline in employment, output and consumption. I then use the model to quantify the effect of the two programs, showing that compared to the CERB program, the CEWS program is more effective in mitigating the loss of employment, output and consumption.

Suggested Citation

  • 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.
    • Handle: RePEc:wis:wpaper:2203
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    unemployment; labour market; pandemic;
    All these keywords.

    JEL classification:

    • 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
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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