Covid-19: A View from the Labor Market

25 Pages Posted: 29 Apr 2020

See all articles by Joshua Bernstein

Joshua Bernstein

Indiana University Bloomington - Department of Economics

Alexander W. Richter

Federal Reserve Bank of Dallas

Nathaniel Throckmorton

affiliation not provided to SSRN

Date Written: April, 2020

Abstract

This paper examines the response of the U.S. labor market to a large and persistent job separation rate shock, motivated by the ongoing economic effects of the COVID-19 pandemic. We use nonlinear methods to analytically and numerically characterize the responses of vacancy creation and unemployment. Vacancies decline in response to the shock when firms expect persistent job destruction and the number of unemployed searching for work is low. Quantitatively, under our baseline forecast the unemployment rate peaks at 19.7%, 2 months after the shock, and takes 1 year to return to 5%. Relative to a scenario without the shock, unemployment uncertainty rises by a factor of 11. Nonlinear methods are crucial. In the linear economy, the unemployment rate “only” rises to 9.2%, vacancies increase, and uncertainty is unaffected. In both cases, the severity of the COVID-19 shock depends on the separation rate persistence.

Keywords: Pandemic, Vacancies, Unemployment Rate, Separation Rate, Nonlinear Solution, COVID-19

JEL Classification: E24, E27, J63

Suggested Citation

Bernstein, Joshua and Richter, Alexander W. and Throckmorton, Nathaniel, Covid-19: A View from the Labor Market (April, 2020). FRB of Dallas Working Paper No. 2010. Available at SSRN: https://ssrn.com/abstract=3587636 or http://dx.doi.org/10.24149/wp2010

Joshua Bernstein (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Alexander W. Richter

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5360 (Phone)

HOME PAGE: http://alexrichterecon.com

Nathaniel Throckmorton

affiliation not provided to SSRN

No Address Available

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