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COVID-19 Is Also a Reallocation Shock

Jose Maria Barrero, Nicholas Bloom () and Steven Davis ()

No 2020-60, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: Drawing on firm-level forecasts at a one-year 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 SBU questions to estimate that the COVID-19 shock caused 3 new hires for every 10 layoffs, that 32-42% of COVID-induced layoffs will be permanent, and that one-tenth of all work days (one-fifth for office workers) will shift from business premises to residences in the post-pandemic world relative to the pre-pandemic situation. Our survey evidence aligns well with anecdotal evidence of large pandemic-induced demand increases at many firms, evidence on job openings, gross job creation and gross business formation, and a sharp pandemic-induced rise in equity return dispersion across firms. After developing the evidence, we consider implications for the economic outlook and for policy responses to the pandemic. Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, land-use restrictions, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock.

Keywords: COVID-19; coronavirus; reallocation shock; Survey of Business Uncertainty; CARES Act (search for similar items in EconPapers)
JEL-codes: D22 D84 E24 H12 H25 J21 J62 J63 J65 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2020
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (21) Track citations by RSS feed

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