The Impact of Increased Unemployment Benefits During the COVID-19 Pandemic

Junjie Guo, Noah Williams, Arwa Alalwani, Zhi Jiang, Jiashun Pang, Stefan Smutny, Linhua Zeng


We analyze the effects of the 2020 CARES Act implementation on the local labor market. We use observations from the Homebase Database which provides granular labor market data from a sample of small businesses across the United States. Our analysis consists of two parts.

In the first part we employ a linear probability event study model to explore effects of the lump-sum increase in unemployment insurance on employment probabilities for groups with different exposure to this policy change. We find little evidence for negative effects of the CARES Act on the labor market, which is in line with previous findings in the recent literature.

In the second part, we consider a regression analysis of different COVID-19 related measures put in place throughout the course of spring 2020 and their effects on employment probabilities. Our findings should serve as a possible explanation for the lack of effects observed in our first part. We find strong negative labor market implications for most of these measures across all observed groups prior to the CARES Act enactment.

The temporary negative labor market dynamics caused by these measures could be expected to partially overshadow the effects of an increase in unemployment insurance. That is, the huge negative shock of the onset of the pandemic made measurement of second order impacts, like the differential impact of benefits across workers, more difficult. Importantly, our results do not necessarily imply that enhanced benefits would continue to have minimal impact later in the pandemic as the economic recovery continues.

Read Full Report