Skill loss during unemployment and the scarring effects of the COVID-19 pandemic

Paul Jackson and Victor Ortego-Marti

Labour Economics, 2024, vol. 88, issue C

Abstract: We integrate the SIR epidemiology model into a search and matching framework with skill loss during unemployment. As infections spread, fewer jobs are created, skills deteriorate and TFP declines. The equilibrium is not efficient due to infection and skill composition externalities. Job creation increases infections due to increased interactions among workers. However, lower job creation decreases TFP due to skill loss. A pandemic causes the unemployment rate to increase by 13.4 percentage points and TFP to decline by 0.61%, i.e. nearly 54% of productivity losses in past recessions. We study the efficient allocation given the trade-off between both externalities and show that quantitatively the skill composition externality is sizable.

Keywords: COVID-19; Skill loss; TFP; Search and matching; Unemployment; Pandemics (search for similar items in EconPapers)
JEL-codes: E2 E24 I1 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Skill Loss during Unemployment and the Scarring Effects of the COVID-19 Pandemic (2021)
Working Paper: Skill Loss during Unemployment and the Scarring Effects of the COVID-19 Pandemic (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:88:y:2024:i:c:s0927537124000125

DOI: 10.1016/j.labeco.2024.102516

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