Distributional impacts of the Covid-19 pandemic and the CARES Act

Abstract

Using data from the Current Population Survey, we investigate the distributional consequences of the Covid-19 pandemic and the associated public policy response on labor earnings and unemployment benefits in the United States up until February 2021. We find that year-on-year changes in labor earnings for employed individuals were not atypical during the pandemic months, regardless of their initial position in the earnings distribution. The incidence of job loss, however, was substantially higher among low earners, leading to a dramatic increase in labor income inequality among the set of individuals who were employed prior to the onset of the pandemic. By providing very high replacement rates for individuals displaced from low-paying jobs, the initial public policy response was successful in reversing the regressive nature of the pandemic’s impacts. We estimate, however, that recipiency rates for displaced low earners were lower than for higher earners. Moreover, from September 2020 onwards, when policy changes led to a decline in benefit levels, earnings changes became less progressive.