Sectoral Digital Intensity and GDP Growth After a Large Employment Shock: A Simple Extrapolation Exercise

42 Pages Posted: 6 Aug 2020

See all articles by Giovanni Gallipoli

Giovanni Gallipoli

Vancouver School of Economics, UBC; Centre for Economic Policy Research (CEPR); University of Chicago - Becker Friedman Institute for Economics; Rimini Centre for Economic Analysis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: July 25, 2020

Abstract

We examine the dynamics of GDP following an economy-wide pandemic shock that curtails physical mobility and the ability to perform certain tasks at work. We examine whether greater reliance on digital technologies has the potential to mediate employment and productivity losses. We employ industry-level indices of task-based digital intensity and ability to work from home ("home-shorability''), in conjunction with publicly available data on employment and GDP for Canada, and document that: (i) employment responses after the onset of the shock are milder in digitally-intensive sectors; (ii) conditional on the size of employment changes, GDP responses are less extreme in IT-intensive sectors. We suggest a simple state-dependent algorithm for predicting output dynamics as a function of employment across industries and locations with different digital intensity. In our baseline scenario, aggregate output returns to pre-crisis levels eight quarters after the initial shock onset, although we find significant heterogeneity in recovery patterns across sectors.

Keywords: Output, Digital Intensity, Employment, Canada, Coronavirus, Structural Change

JEL Classification: E32, E66, J21, J23

Suggested Citation

Gallipoli, Giovanni and Makridis, Christos, Sectoral Digital Intensity and GDP Growth After a Large Employment Shock: A Simple Extrapolation Exercise (July 25, 2020). Available at SSRN: https://ssrn.com/abstract=3660598 or http://dx.doi.org/10.2139/ssrn.3660598

Giovanni Gallipoli

Vancouver School of Economics, UBC ( email )

6000 Iona drive
Vancouver, BC BC V6T 1L4
Canada

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Chicago - Becker Friedman Institute for Economics ( email )

Chicago, IL 60637
United States

Rimini Centre for Economic Analysis ( email )

Rimini
Italy

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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