January 2023

Earnings Business Cycles: The Covid Recession, Recovery, and Policy Response

Jeff Larrimore, Jacob Mortenson, and David Splinter


Using a panel of tax data, we follow the earnings of individuals over business cycles. Compared to prior recessions, the Covid policy response and recovery were far more progressive. Among workers starting in the bottom quintile, median real earnings including fiscal relief increased 66 percent in 2020 and earnings increases offset relief decreases in the 2021 recovery. After the prior two recessions, this measure had decreased by 24 percent. Among those starting in the top quintile, median and average real earnings were approximately unchanged. This difference from prior recessions is largely attributable to larger Covid-era stimulus payments and unemployment insurance.

Keywords: Covid-19, wages, earnings, stimulus checks, unemployment insurance, countercyclical policy, government transfers

DOI: https://doi.org/10.17016/FEDS.2023.004

PDF: Full Paper

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Last Update: July 14, 2023