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COVID-19 Is Also a Reallocation Shock

Author

Listed:
  • Jose Maria Barrero

    (ITAM - Business School)

  • Nicholas Bloom

    (Stanford University and NBER)

  • Steven J. Davis

    (University of Chicago, NBER, and Hoover Institution)

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.

Suggested Citation

  • Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2020. "COVID-19 Is Also a Reallocation Shock," Working Papers 2020-60, Becker Friedman Institute for Research In Economics.
  • Handle: RePEc:bfi:wpaper:2020-59
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    More about this item

    Keywords

    COVID-19; coronavirus; reallocation shock; Survey of Business Uncertainty; CARES Act;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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