Impacts of the Covid-19 Pandemic and the Cares Act on Earnings and Inequality

43 Pages Posted: 31 Aug 2020

See all articles by Guido Matias Cortes

Guido Matias Cortes

York University

Eliza Forsythe

University of Illinois at Urbana-Champaign - School of Labor & Employment Relations; University of Illinois at Urbana-Champaign - Department of Economics

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Abstract

Using data from the Current Population Survey (CPS), we show that the COVID-19 pandemic led to a loss of aggregate real labor earnings of more than $250 billion between March and July 2020. By exploiting the panel structure of the CPS, we show that the decline in aggregate earnings was entirely driven by declines in employment; individuals who remained employed did not experience any atypical earnings changes. We find that job losses were substantially larger among workers in low-paying jobs. This led to a dramatic increase in inequality in labor earnings during the pandemic. Simulating standard unemployment benefits and UI provisions in the CARES Act, we estimate that UI payments exceeded total pandemic earnings losses between March and July 2020 by $9 billion. Workers who were previously in the bottom third of the earnings distribution received 49% of the pandemic associated UI and CARES benefits, reversing the increases in labor earnings inequality. These lower income individuals are likely to have a high fiscal multiplier, suggesting these extra payments may have helped stimulate aggregate demand.

Keywords: COVID-19, earnings inequality, unemployment insurance

JEL Classification: J31, J65, J68, H53, H84, E24

Suggested Citation

Cortes, Guido Matias and Forsythe, Eliza and Forsythe, Eliza, Impacts of the Covid-19 Pandemic and the Cares Act on Earnings and Inequality. Available at SSRN: https://ssrn.com/abstract=3682957 or http://dx.doi.org/10.2139/ssrn.3682957

Guido Matias Cortes (Contact Author)

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Eliza Forsythe

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

University of Illinois at Urbana-Champaign - School of Labor & Employment Relations ( email )

504 East Armory Avenue
Champaign, IL 61820-6297
United States

HOME PAGE: http://sites.google.com/site/elizaforsythe/

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