COVID-19 Is Also a Reallocation Shock

Jose Maria Barrero, Nicholas Bloom and Steven Davis

No 27137, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D22 D84 E24 H12 H25 J21 J62 J63 J65 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS PE
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Citations: View citations in EconPapers (203)

Published as Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2020. "COVID-19 Is Also a Reallocation Shock," Brookings Papers on Economic Activity, vol 2020(2), pages 329-383.

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Journal Article: COVID-19 Is Also a Reallocation Shock (2020)
Working Paper: COVID-19 Is Also a Reallocation Shock (2020)
Working Paper: COVID-19 Is Also a Reallocation Shock (2020)
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