Employment uncertainty a year after the irruption of the covid-19 pandemic

Petar Sorić and Oscar Claveria

No 202104, AQR Working Papers from University of Barcelona, Regional Quantitative Analysis Group

Abstract: This paper examines the evolution of consumer uncertainty about unemployment one year after the irruption of the covid-19 pandemic in European countries. Since uncertainty is not directly observable, we use two alternative methods to directly approximate it. Both approaches are based on qualitative expectations elicited form the consumer survey conducted by the European Commission. On the one hand, following Dibiasi and Iselin (2019), we use the share of consumers unable to formalize expectations about unemployment (Knightian-type uncertainty). On the other hand, we use the geometric discrepancy indicator proposed by Claveria et al. (2019) to quantify the proportion of disagreement in business and consumer expectations. We have used information from 22 European countries. We find that both uncertainty measures covary. Although we observe marked differences across countries, in most cases the perception of employment uncertainty peaked before the outbreak of the crisis, plummeted during the first months of the lockdown, and started rising again since the past few months. When testing for cointegration with the unemployment rate, we find that the discrepancy indicator exhibits a long- term relationship with unemployment in most countries, while the Knightian uncertainty indicator shows a purely short-run relationship. The impact of both indicators on unemployment is characterised by considerable asymmetries, showing a more intense reaction to decreases in the level of uncertainty. While this finding may seem counterintuitive at first sight, it somehow reflects the fact that during recessive periods, the level of disagreement in the employment expectations of consumers drops considerably

Keywords: COVID-19; Employment uncertainty; Unemployment expectations; Disagreement; Consumers; Cointegration. JEL classification: C14; C32; C82; C83; J01. (search for similar items in EconPapers)
Pages: 28 pages
Date: 2021-05, Revised 2021-05
New Economics Papers: this item is included in nep-eec and nep-lab
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Working Paper: Employment uncertainty a year after the irruption of the covid-19 pandemic (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:aqr:wpaper:202104

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