Labor Supply and Demand Shocks in Brazil During Covid-19 Period

Nelson Silva and Sidney Caetano

No 567, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Covid-19 has impacted the labor market, not only by reducing the level of occupancy but also by altering real effective earnings and hours effectively worked. We measure labor demand and supply shocks using data from the Continuous PNAD - Continuous National Household Sample Survey. The estimated shocks are interpreted as exogenous shifts in the labor supply and demand curves and are empirically measured by the estimation of a Bayesian Structural Autoregressive Vector model. We use sign restrictions to identify labor demand and supply shocks. Our results show, in the second quarter of 2020, adverse and significant effects of both shocks on hours worked, with greater relevance of demand shocks and greater impacts on activities related to the service sector. About 70% of the decline in hours worked in the latter sector was explained by demand shocks. In the third quarter of 2020, the signal of the shocks was reversed and the increase in hours worked was again sustained by demand shocks, although some activities in the service sector registered an increase in the importance of labor supply shocks. In the following quarters, shocks converge to their historical patterns.

Date: 2022-09
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