Labor market trends and unemployment insurance generosity during the pandemic

The CARES Act expanded unemployment insurance (UI) benefits by providing a $600 weekly payment in addition to state unemployment benefits. Most workers thus became eligible to receive unemployment benefits that exceed their weekly wages. It has been hypothesized that such high benefits encourage employers to lay off workers and discourage workers from returning to work. In this note, we test whether changes in UI benefit generosity are associated with decreased employment, both at the onset of the benefits expansion and as businesses look to reopen. We use weekly data from Homebase, a private firm that provides scheduling and time clock software to small businesses, which allows us to exploit high-frequency changes in state and federal policies to understand how firms and workers respond to policy changes in real time. Additionally, we benchmark our results from the Homebase data to employment outcomes in the Current Population Survey (CPS). We find that that the workers who experienced larger increases in UI generosity did not experience larger declines in employment when the benefits expansion went into effect. Additionally, we find that workers facing larger expansions in UI benefits have returned to their previous jobs over time at similar rates as others. We find no evidence that more generous benefits disincentivized work either at the onset of the expansion or as firms looked to return to business over time. In future research, it will be important to assess whether the same results hold when states move to reopen, and to analyze the effects of high UI replacement rates on reallocation of labor both within and across firms.