Twin Peaks: Covid-19 and the labor market

Jake Bradley, Alessandro Ruggieri and Adam Hal Spencer

European Economic Review, 2021, vol. 138, issue C

Abstract: This paper develops a choice-theoretic equilibrium model of the labor market in the presence of a pandemic. It includes heterogeneity in productivity, age and the ability to work from home. Worker and firm behavior changes in the presence of the virus, which itself has equilibrium consequences for the infection rate. The model is calibrated to the UK and counterfactual lockdown measures are evaluated. We find a different response in both the evolution of the virus and the labor market with different lockdown policies. A laissez-faire approach results in lives lost and acts as negative shock to the economy. A lockdown policy, absent any other intervention, will reduce the lives lost but increase the economic burden. Consistent with recent evidence, we find that the economic costs from lockdown are most felt by those earning the least. Finally, we introduce a job retention scheme as implemented by the UK Government and find that it spreads the economic hardship more equitably.

Keywords: Covid-19; SIR model; Search and matching; Lockdown; Furlough (search for similar items in EconPapers)
JEL-codes: I1 I3 J1 J6 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:138:y:2021:i:c:s0014292121001653

DOI: 10.1016/j.euroecorev.2021.103828

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