Labor Market Policies during an Epidemic

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.

COVID-19: quais motivos levaram os pacientes a procurarem pronto atendimento oftalmológico durante a pandemia?

“…Para além disso, é preciso considerar outro motivo, ainda mais grave e perigoso: o negacionismo científico, cuja ideologia distorce os estudos pretéritos, presentes e, pior do que isso, põe em cheque as pesquisas que estão em andamento. Artigos opinativos (7)(8)(9) , firmados por articulistas de propriedade, entre os quais médicos e profissionais das ciências sociais, dão conta de que o negacionismo atende a conveniências político-partidárias, calcadas numa realidade fantasiosa, criminosa e distante do compromisso humanitário de proteção à vida. Fica claro que a desinformação associada à estratégia do negacionismo científico contribui para a resistência da população às medidas de restrição sociais necessárias ao combate da pandemia da COVID-19.…”

How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China

“…However, while we have made empirical statements about the liquidity-targeting properties of payroll tax cuts, the broader welfare effect of wage subsidies is more complicated. Birinci et al (2021) and Abbott and Van Phan (2021) use calibrated labor market search models to demonstrate that wage subsidies are an optimal fiscal response to a pandemic shock in labor markets with frictions, especially, though not exclusively, when unemployment insurance is limited (as in China). In these models, a welfare benefit arises because wage subsidies preserve employee-firm matches which provides direct income smoothing and speeds up the recovery once the initial shock subsides.…”

“…Yet labor market informality raises additional considerations that neither Birinci et al (2021) nor Abbott and Van Phan (2021) incorporate. For instance, formal employment may reflect better-quality matches, increasing the social value of retention of formal matches relative to informal ones.…”

“…The first comprises studies using pre-2020 administrative data to project the distribution of fiscal relief (Alstadsaeter et al, 2020;Ganong et al, 2020;Bachas et al, 2020). A second strand analyzes various forms of job retention subsidies (Bartik et al, 2020;Bennedsen et al, 2020;Birinci et al, 2021;Chetty et al, 2020;Granja et al, 2020;Kaplan et al, 2020). Even though adoptions of temporary payroll tax cuts in 2020 were not uncommon around the world (Table A.1), they have received limited attention in the economic literature.…”

Should wages be subsidized in a pandemic?

“…There is also a large literature studying the impact of government policies during the pandemic. The most related of these studies is Birinci et al (2021), who also compare an unemployment benefit expansion to a payroll subsidy. The primary difference between their work and our own is that our model features an endogenous distribution of wealth, whereas their model assumes households are hand-to-mouth.…”