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  5. A Social Insurance Perspective on Pandemic Fiscal Policy: Implications for Unemployment Insurance and Hazard Pay

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

A Social Insurance Perspective on Pandemic Fiscal Policy: Implications for Unemployment Insurance and Hazard Pay

  • Christina D. Romer
  • David H. Romer
Journal of Economic Perspectives
vol. 36, no. 2, Spring 2022
(pp. 3–28)
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Abstract

This paper considers fiscal policy during the pandemic through the lens of optimal social insurance. We develop a simple framework to analyze how government taxes and transfers could mimic the insurance that people would like to have had against pandemic income losses. Permutations of the framework provide insight into how unemployment insurance should be structured, when and how much hazard pay is called for, and whether fiscal policy should aim just to redistribute income or also to stimulate aggregate demand during a pandemic. When we use the insights from the model to evaluate unemployment insurance measures taken during the pandemic, we find that some, but far from all, of the implications of the social insurance framework were followed. In the case of hazard pay, we find that the proposal for a national program (the never-implemented HEROES Act) was both broader and more generous than a social insurance perspective would call for. We suggest that the social insurance perspective on fiscal policy is likely to become increasingly relevant as pandemics and climate-related natural disasters become more common causes of unemployment and recessions.

Citation

Romer, Christina D., and David H. Romer. 2022. "A Social Insurance Perspective on Pandemic Fiscal Policy: Implications for Unemployment Insurance and Hazard Pay." Journal of Economic Perspectives, 36 (2): 3–28. DOI: 10.1257/jep.36.2.3

Additional Materials

JEL Classification

  • D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
  • E32 Business Fluctuations; Cycles
  • E62 Fiscal Policy
  • G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
  • I12 Health Behavior
  • J33 Compensation Packages; Payment Methods
  • J65 Unemployment Insurance; Severance Pay; Plant Closings
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