Aggregate Employment Effects of Unemployment Benefits During Deep Downturns: Evidence from the Expiration of the Federal Pandemic Unemployment Compensation

The expiration of the temporary $600 boost to weekly UI benefits under the Federal Pandemic Unemployment Compensation (FPUC) led to a sharp, unprecedented, 98 percentage point reduction (on average) in the replacement rate during a time when employment was recovering during the Covid recession. Leveraging the considerable variation in this drop across states, I use a difference-in-differences event study design to estimate the macro employment effects. I find little impact of job gains from the benefit reduction, especially when I focus on groups (non-college graduates, and those from non-high-income households) that comprise of most UI recipients. The estimates rule out job gains implied by much of the micro UI duration elasticities from the existing literature.