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  5. Public Policy and the Labor Market during COVID-19
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Public Policy and the Labor Market during COVID-19

Paper Session

Saturday, Jan. 8, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: American Economic Association
  • Chair: Jesse Rothstein, University of California-Berkeley

Searching, Recalls, and Tightness: An Interim Report on the COVID Labor Market

Eliza Forsythe
,
University of Illinois-Urbana-Champaign
Lisa Kahn
,
University of Rochester
Fabian Lange
,
McGill University
David Wiczer
,
Stony Brook University

Abstract

We report on the state of the labor market midway through the COVID recession, focusing particularly on measuring market tightness. As we show using a simple model, tightness is crucial for understanding the relative importance of labor supply or demand side factors in job creation. In tight markets, worker search effort has a relatively larger impact on job creation, while employer profitability looms larger in slack markets. We measure tightness combining job seeker information from the CPS and vacancy postings from Burning Glass Technologies. To parse the former, we develop a taxonomy of the non-employed that identifies job seekers and excludes the large number of those on temporary layoff who are waiting to be recalled. With this taxonomy, we find that effective tightness has declined about 50% since the onset of the epidemic to levels last seen in 2016, when labor markets generally appeared to be tight. Disaggregating market tightness, we find mismatch has surprisingly declined in the COVID recession.

The Impact of the Federal Pandemic Unemployment Compensation on Job Search and Vacancy Creation

Ioana Marinescu
,
University of Pennsylvania
Daphne Skandalis
,
University of Copenhagen
Daniel Zhao
,
Glassdoor, Inc.

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.

The Targeting and Impact of Paycheck Protection Loans to Small Businesses

Alexander Wickman Bartik
,
University of Illinois-Urbana-Champaign
Zoe Cullen
,
Harvard University
Edward Glaeser
,
Harvard University
Michael Luca
,
Harvard University
Christopher Stanton
,
Harvard University

Abstract

What happens when vast public resources are allocated by private actors, whose objectives may be imperfectly aligned with public goals? We study this question in the context of the Paycheck Protection Program (PPP), which relied on private banks to rapidly disburse more than five hundred billion dollars of aid to small businesses. We present a model suggesting that such delegation is optimal if delay is very costly, the variance of the impact of funds across firms is small, and the correlation between public and private objectives is high. We then use firm-level data to measure heterogeneity in the impact of PPP and to assess whether banks targeted loans to high-impact firms. Using an instrumental variables approach, we find that PPP loans increased business’s expected survival rates by 9 to 22 percentage points and modestly boosted employment. The potential for heterogeneous treatment effects suggests that targeting may have increased the overall program impact. Yet while banks did target loans to their pre-existing customers, treatment effect heterogeneity is sufficiently modest and the correlation between bank loan allocations and public objectives seems sufficiently strong, so that delegation could still have been optimal given the high costs of delay.

Discussant(s)
Jesse Rothstein
,
University of California-Berkeley
Camille Landais
,
London School of Economics
Christopher Neilson
,
Princeton University
JEL Classifications
  • J2 - Demand and Supply of Labor
  • M5 - Personnel Economics