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Measuring Sectoral Supply and Demand Shocks during COVID-19

Author

Listed:
  • Pedro Brinca
  • Joao B. Duarte
  • Miguel Faria-e-Castro

Abstract

We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Most sectors were subject to historically large negative labor supply and demand shocks in March and April, with substantial heterogeneity in the size of shocks across sectors. Our estimates suggest that two-thirds of the drop in the aggregate growth rate of hours in March and April 2020 are attributable to labor supply. We validate our estimates of supply shocks by showing that they are correlated with sectoral measures of telework.

Suggested Citation

  • Pedro Brinca & Joao B. Duarte & Miguel Faria-e-Castro, 2020. "Measuring Sectoral Supply and Demand Shocks during COVID-19," Working Papers 2020-011, Federal Reserve Bank of St. Louis, revised Jul 2020.
  • Handle: RePEc:fip:fedlwp:87978
    DOI: 10.20955/wp.2020.011
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    References listed on IDEAS

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    1. Martin Bodenstein & Giancarlo Corsetti & Luca Guerrieri, 2020. "Social Distancing and Supply Disruptions in a Pandemic," Finance and Economics Discussion Series 2020-031, Board of Governors of the Federal Reserve System (U.S.).
    2. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
    3. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
    4. Dingel, Jonathan & Neiman, Brent, 2020. "How Many Jobs Can be Done at Home?," CEPR Discussion Papers 14584, C.E.P.R. Discussion Papers.
    5. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iv‡n Werning, 2020. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," Working Papers 2020-35, Becker Friedman Institute for Research In Economics.
    6. David Baqaee & Emmanuel Farhi, 2020. "Supply and Demand in Disaggregated Keynesian Economies with an Application to the Covid-19 Crisis," NBER Working Papers 27152, National Bureau of Economic Research, Inc.
    7. George A. Akerlof & William T. Dickens, 2007. "Unfinished Business in the Macroeconomics of Low Inflation: A Tribute to George and Bill by Bill and George," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2), pages 31-48.
    8. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-968, November.
    9. Simon Mongey & Laura Pilossoph & Alex Weinberg, 2020. "Which Workers Bear the Burden of Social Distancing Policies?," NBER Working Papers 27085, National Bureau of Economic Research, Inc.
    10. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
    11. Christiane Baumeister & James D. Hamilton, 2015. "Sign Restrictions, Structural Vector Autoregressions, and Useful Prior Information," Econometrica, Econometric Society, vol. 83(5), pages 1963-1999, September.
    12. R. Maria del Rio-Chanona & Penny Mealy & Anton Pichler & Francois Lafond & Doyne Farmer, 2020. "Supply and demand shocks in the COVID-19 pandemic: An industry and occupation perspective," Papers 2004.06759, arXiv.org.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic consequences > Employment and Work

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    Cited by:

    1. Adams-Prassl, A. & Boneva, T. & Golin, M & Rauh, C., 2020. "Work Tasks That Can Be Done From Home: Evidence on the Variation Within and Across Occupations and Industries," Cambridge Working Papers in Economics 2040, Faculty of Economics, University of Cambridge.
    2. Jesus Fernandez-Villaverde & Pablo Guerron-Quintana, 2020. "Uncertainty Shocks and Business Cycle Research," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 118-166, August.
    3. Naudé, Wim, 2020. "Entrepreneurial Recovery from COVID-19: Decentralization, Democratization, Demand, Distribution, and Demography," IZA Discussion Papers 13436, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Sign Restrictions; Supply and Demand Shocks; COVID-19; Structural Vector Autoregressions;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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