Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241220 
Year of Publication: 
2020
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2020-54
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a costequivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The relatively small proportion allocated to payroll subsidies is sufficient to preserve high-productivity jobs but this also leaves room for social assistance to workers who face inevitable job losses.
Subjects: 
Coronavirus disease (COVID-19)
Business fluctuations and cycles
Fiscal policy
Labour markets
JEL: 
E24
E62
J64
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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