This paper investigates the distinct roles played by unemployment insurance (UI) generosity and lockdown strictness in shaping state-level labor market outcomes in the United States, particularly during mid-2021. Exploiting the cross-state variation that arose during this time, we leverage two instrumental variables – historical UI generosity and political leaning – to disentangle the supply- and demand-side effects. States at the low end of UI generosity replaced about 45% of prior wages, while the most generous states replaced about 90%, and this gap is associated with a 1.3 pp higher unemployment rate, with uncertain effects on unemployment duration. Moving from minimal to near-total lockdowns adds roughly 6 weeks to average unemployment spells and raises unemployment by about 0.4 pp. The findings contribute critical insights into effective policy evaluation during systemic shocks to supply and demand.
Shivant Krishnan (2025) studied this question.