Working Paper: NBER ID: w27105
Authors: Victoria Gregory; Guido Menzio; David G. Wiczer
Abstract: We develop and calibrate a search-theoretic model of the labor market in order to forecast the evolution of the aggregate US labor market during and after the coronavirus pandemic. The model is designed to capture the heterogeneity of the transitions of individual workers across states of unemployment, employment and across different employers. The model is also designed to capture the trade-offs in the choice between temporary and permanent layoffs. Under reasonable parametrizations of the model, the lockdown instituted to prevent the spread of the novel coronavirus is shown to have long-lasting negative effects on unemployment. This is so because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.
Keywords: Pandemic; Labor Market; Unemployment; Lockdown
JEL Codes: E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lockdown (K40) | unemployment (J64) |
| lockdown (K40) | termination and suspension of employment relationships (J63) |
| termination and suspension of employment relationships (J63) | permanent layoffs (J63) |
| lockdown duration (C41) | likelihood of permanent layoffs (J63) |
| maintaining ties with employers during lockdown (J63) | recovery speed from unemployment post-lockdown (J64) |
| inactive relationships dissolve (L14) | recovery speed from unemployment post-lockdown (J64) |
| lockdown (K40) | V-shaped or L-shaped recession (E32) |