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: Jeffrey Miron, Erin Partin Source Type: blogs
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