Unemployment Insurance Excess During COVID-19

Jeffrey Miron andErin PartinAs Congress negotiates an additionalcoronavirus stimulus bill, a  newworking paper from University of Chicago economists examines one element of the initial stimulus package – the extra $600 weekly benefit for unemployed workers through unemployment insurance (UI). The authors find that:“The median replacement rate [of unemployment insurance under the provision of the CARES Act] is 134%. Two‐​thirds of UI eligible workers can receive benefits which exceed lost earnings and one‐​fifth can receive benefits at least double lost earnings. There is sizable variation in the eff ects of the CARES Act across occupations and states, with important distributional consequences.”Additionally:“…replacement rates over 100% create distributional issues and may hamper efficient labor reallocation both now, and especially during an eventual recovery. That is, expanded UI induces trade‐​offs between consumption smoothing and moral hazard.”Under the CARES Act, the weekly $600 Federal Pandemic Unemployment Compensation benefit would expire at the end of June. The HEROES Act, however, which the House passed last week, would extend the $600 weekly benefit until January 2021. (The Senate is unlikely to adopt HEROES without substantial modifications.)The main problem identified by the authors is the overall design of the UI policy – $600 per week, regardless of previous benefit level. This raises the replacement rate – the ratio of UI benefits...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs