COVID-19 Is Also a Reallocation Shock

60 Pages Posted: 5 May 2020 Last revised: 30 Jun 2020

See all articles by Jose Maria Barrero

Jose Maria Barrero

ITAM - Business School

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Date Written: June 25, 2020

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

JEL Classification: D22, D84, E24, H12, H25, J21, J62, J63, J65

Suggested Citation

Barrero, Jose Maria and Bloom, Nicholas and Davis, Steven J., COVID-19 Is Also a Reallocation Shock (June 25, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-59, Available at SSRN: https://ssrn.com/abstract=3592953 or http://dx.doi.org/10.2139/ssrn.3592953

Jose Maria Barrero

ITAM - Business School ( email )

Rio Hondo No. 1
Col. Tizapan-San Angel Alc. Alvaro Obregon
Ciudad de Mexico, 01000
Mexico

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven J. Davis (Contact Author)

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution

434 Galvez Mall
Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

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