The COVID-19 pandemic and efforts to contain the virus are exacting a staggering economic toll in countries around the world. China’s economy shrank 6.8 percent in the first quarter of 2020 on a year-on-year basis, and Eurozone economies shrank at a 14.8 percent annualized rate.
In the United States, nearly 28 million persons filed new claims for unemployment benefits over the six-week period ending April 25.
The U.S. economy shrank at an annualized rate of 4.8 percent in the first quarter of 2020, and many analysts project it will shrink at a rate of 25% or more in the second quarter. Yet, even as much of the economy is shuttered, some firms are
expanding in response to pandemic-induced demand shifts. As noted in a recent Wall Street Journal article, “The coronavirus pandemic is forcing the fastest reallocation of labor since World War II, with companies and governments mobilizing an army of idled workers into new activities that are urgently needed.” In other words, Covid-19 is also a major reallocation shock.
We develop evidence on the extent and character of this reallocation shock for the U.S.
economy. We start with anecdotal evidence, drawing on news reports and other sources.
Anecdotal evidence is useful for its immediacy, as a source of hypotheses, and for insights into broader forces. Next, we turn to the Survey of Business Uncertainty (SBU) to construct novel, forward-looking measures of expected sales and job reallocation across American firms at a oneyear look-ahead horizon. The SBU is a monthly panel survey developed and fielded by the Federal Reserve Bank of Atlanta in cooperation with Chicago Booth and Stanford.
Drawing on firm-level expectations at a one-year forecast horizon in the Survey of Business Uncertainty (SBU), we construct novel, forward-looking reallocation measures for jobs and sales. These measures rise sharply after February 2020, reaching rates in April that are 2.4 (3.9) times the pre-COVID average for jobs (sales). We also draw on special questions in the April SBU to quantify the near-term impact of the COVID-19 shock on business staffing.
We find 3 new hires for every 10 layoffs caused by the shock and estimate that 42 percent of recent layoffs will result in permanent job loss. Our survey evidence aligns well with anecdotal evidence of large pandemic-induced demand increases at some firms, with contemporaneous evidence on gross business formation, and with a sharp pandemic-induced rise in equity return dispersion across firms.
After developing the evidence, we consider implications of our evidence for the economic outlook and for policy responses to the pandemic.
Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock.
Chosen excerpts by Job Market Monitor. Read the whole story @ COVID-19 Is Also a Reallocation Shock | BFI