Working Paper: NBER ID: w28567
Authors: Ioana Marinescu; Daphne Skandalis; Daniel Zhao
Abstract: During the COVID-19 pandemic, the Federal Pandemic Unemployment Compensation (FPUC) increased US unemployment benefits by $600 a week. Theory predicts that FPUC will decrease job applications, and could decrease vacancy creation. We estimate the effect of FPUC on job applications and vacancy creation week by week, from March to July 2020, using granular data from the online jobs platform Glassdoor. We exploit variation in the proportional increase in benefits across local labor markets. To isolate the effect of FPUC, we flexibly allow for different trends in local labor markets differentially exposed to the COVID-19 crisis. We verify that trends in outcomes prior to the FPUC do not correlate with future increases in benefits, which supports our identification assumption. First, we find that a 10% increase in unemployment benefits caused a 3.6% decline in applications, but did not decrease vacancy creation; hence, FPUC increased tightness (vacancies/applications). Second, we document that tightness was unusually depressed during the FPUC period. Altogether, our results imply that the positive effect of FPUC on tightness was welfare improving: FPUC decreased competition among applicants at a time when jobs were unusually scarce. Our results also help explain prior findings that FPUC did not decrease employment.
Keywords: Unemployment Insurance; COVID-19; Job Search; Labor Market
JEL Codes: J63; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Pandemic Unemployment Compensation (FPUC) (J65) | job applications (M51) |
| Federal Pandemic Unemployment Compensation (FPUC) (J65) | vacancy creation (J63) |
| Federal Pandemic Unemployment Compensation (FPUC) (J65) | labor market tightness (J20) |
| job applications (M51) | labor market tightness (J20) |