Earnings Shocks and Stabilization During COVID-19

Abstract

This paper documents the magnitude and distribution of U.S. earnings changes during the COVID-19 pandemic and how fiscal relief offset lost earnings. We build panels from administrative tax data to measure annual earnings changes. The frequency of earnings declines during the pandemic were similar to the Great Recession, but the distribution was very different. In 2020, workers starting in the bottom half of the distribution were more likely to experience large annual earnings declines and a similar share of male and female workers had large earnings declines. While most workers experiencing large annual earnings declines do not receive unemployment insurance, over half of beneficiaries were made whole in 2020, as unemployment insurance replaced a median of 103 percent of their annual earnings declines. After incorporating unemployment insurance, the likelihood of large earnings declines among low-earning workers was not only smaller than during the Great Recession, but also smaller than in 2019.

Changes in Retirement Savings during the COVID Pandemic

“…Prior research has examined changes in unemployment and inequality (Bartik, et al, 2020;Cajner, et al, 2020;Clark, Lusardi and Mitchell, 2020;Coibion, Gorodnichenko and Weber, 2020;Guerrieri, et al, 2020), consumer spending (Chetty, et al, 2021), and early retirement (Goda, et al, 2021;Bui, et al, 2020;Davis, 2021) during the pandemic. Others have studied the effects of both federal and state government interventions during the pandemic including stay-at-home orders (Forsythe, et al, 2020), and 2 federal assistance programs like unemployment insurance and stimulus payments (Baker, et al, 2020;Chetty, et al, 2021, Larrimore et al, 2022. This paper also contributes to the body of work exploring the effect of economic shocks and policy changes on retirement savings.…”

“…3 While the panel is unbalanced, it is representative of the population of taxpayers within each year from 2003 to 2020, and individuals can enter the panel by immigration, birth, or receiving a tax form, and they can exit the panel by emigration, death, or failing to receive a tax form. These base data have been used in several prior papers (Mortenson, Schramm, and Whitten, 2019;Goodman, et al, 2021;Larrimore, Mortenson, and Splinter, 2022).…”

“…First, retirement savings are concentrated in the upper half of the wage income distribution: in 2019, approximately 90 percent of contributions to employer-sponsored defined contribution plans were made by workers in the top two quintiles of the wage distribution. As shown in Larrimore, Mortenson, and Splinter (2022), the labor income shocks of the COVID-19 recession were concentrated in the lower half of the wage earnings distribution relative to the Great Recession, reducing the scope for negative income shocks to affect retirement contributions in the aggregate.…”

“…We find little change in contributions in 2020, which increased from the previous year at a rate in line with recent trends, a stark difference from the drop in contributions that occurred during the Great Recession (Argento, Sablehaus, and Bryant, 2015;Goodman, Mackie, Mortenson, and Schramm, 2021). This may have occurred because the effects of the COVID-19 pandemic were disproportionately worse for workers at the bottom of the income distribution, who save at much lower rates than middle-and high-income earners, while the earnings shocks during the Great Recession affected middle-and high-income workers to a greater degree than during COVID-19 (Larrimore, Mortenson, and Splinter, 2022).…”

Germany and the United States in coronavirus distress: internal versus external labour market flexibility

“…In contrast, the Stimulus Checks and the Federal Pandemic Unemployment Compensation proved to be an efficient tool to secure income. While large earning declines were more likely for low wage workers, both instruments together outweighed the otherwise resulting income losses (Larrimore et al 2022) and stabilised income particularly at the lower end of the income distribution (Autor et al 2022). Ganong et al (2020) show that the majority of workers eligible for unemployment benefits between April and July 2020 had replacement rates above 100%.…”