In March 2020, the US entered a “lockdown” so as to prevent the spread of the novel coronavirus. The vast majority of residents of the United States have been ordered to stay at home. Most retail businesses have been ordered to shut down. Most workers have been ordered to stay away from their place of work. Not surprisingly, during March and April of 2020, the number of claims for unemployment benefits has sky-rocketed, exceeding in two months only the total from the entirety of the Great Recession. Is the enormous number of workers entering unemployment going to flow back into the ranks of the employed once the lockdown restrictions are lifted? Or are these workers going to remain unemployed long after the lockdown is removed? In this paper, we develop and quantify a framework to analyze and forecast the evolution of the labor market during and after the coronavirus pandemic.
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.
Chosen excerpts by Job Market Monitor. Read the whole story @ Pandemic Recession: L or V-Shaped?