Lockdowns and the US Unemployment Crisis

Christian Dreger and Daniel Gros

Economics of Disasters and Climate Change, 2021, vol. 5, issue 3, No 8, 449-463

Abstract: Abstract The Covid-19 pandemic led to an unprecedented decline of economic activity at the globe scale. To slow down the spread of the virus, most governments reacted with various measures of social distancing, such as mobility controls, business and school closures, etc. We investigate the short-term impact of social distancing measures on the US labour market, using a panel threshold model with high frequency (weekly) data on unemployment across US states allowing for heteroscedasticity. Labour is a key input in production, and thus a good proxy for the state of the economy. We find that changes in the restrictiveness of mandated social distancing, as measured by the Oxford Stringency Index, exert a strong impact on unemployment. The bulk of the reaction of unemployment to a change in the social distancing restrictions does not arise immediately, but with a delay of 2–4 weeks. In addition, the impact is asymmetric. If the policies switch to tighter regulations, the increase in unemployment is quicker and higher in absolute value than a decrease after relaxation. The state of the pandemic, proxied by the number of new infections and fatalities, constitutes only a marginal factor.

Keywords: Corona pandemic; Lockdown and unemployment; Policy response (search for similar items in EconPapers)
JEL-codes: E00 I18 O11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s41885-021-00092-5

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