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Pandemic Recession: L or V-Shaped?

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  • Victoria Gregory
  • Guido Menzio
  • David G. Wiczer

Abstract

We develop and calibrate a search-theoretic model of the labor market in order to forecast the evolution of the aggregate US labor market during and after the coronavirus pandemic. The model is designed to capture the heterogeneity of the transitions of individual workers across states of unemployment, employment and across different employers. The model is also designed to capture the trade-offs in the choice between temporary and permanent layoffs. Under reasonable parametrizations of the model, the lockdown instituted to prevent the spread of the novel coronavirus is shown to have long-lasting negative effects on unemployment. This is so because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.

Suggested Citation

  • Victoria Gregory & Guido Menzio & David G. Wiczer, 2020. "Pandemic Recession: L or V-Shaped?," NBER Working Papers 27105, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27105
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    Cited by:

    1. Corina Boar & Simon Mongey, 2020. "Dynamic Trade-offs and Labor Supply under the CARES Act," Working Papers 2020-112, Becker Friedman Institute for Research In Economics.
    2. Xin Scott Chen & Ali Jaffery & Guillaume Nolin & Karim Salhab & Peter Shannon & Subrata Sarker, 2020. "Assessing Global Potential Output Growth: October 2020," Discussion Papers 2020-10, Bank of Canada.
    3. Abi Adams‐Prassl & Teodora Boneva & Marta Golin & Christopher Rauh, 2020. "Furloughing," Fiscal Studies, John Wiley & Sons, vol. 41(3), pages 591-622, September.
    4. Michael D. Bordo & Andrew T. Levin & Mickey D. Levy, 2020. "Incorporating Scenario Analysis into the Federal Reserve’s Policy Strategy and Communications," NBER Working Papers 27369, National Bureau of Economic Research, Inc.
    5. J. Paolo Martellini & Guido Menzio & Ludo Visschers, 2019. "Revisiting the Hypothesis of High Discounts and High Unemployment," PIER Working Paper Archive 19-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Aspri, Andrea & Beretta, Elena & Gandolfi, Alberto & Wasmer, Etienne, 2021. "Mortality containment vs. Economics Opening: Optimal policies in a SEIARD model," Journal of Mathematical Economics, Elsevier, vol. 93(C).
    7. Lei Fang & Jun Nie & Zoe Xie, 2020. "Unemployment Insurance during a Pandemic," FRB Atlanta Working Paper 2020-13, Federal Reserve Bank of Atlanta.
    8. Kikuchi, Shinnosuke & Kitao, Sagiri & Mikoshiba, Minamo, 2021. "Who suffers from the COVID-19 shocks? Labor market heterogeneity and welfare consequences in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 59(C).
    9. Didier, Tatiana & Huneeus, Federico & Larrain, Mauricio & Schmukler, Sergio L., 2021. "Financing firms in hibernation during the COVID-19 pandemic," Journal of Financial Stability, Elsevier, vol. 53(C).
    10. Paul Jackson & Victor Ortego-Marti, 2020. "Skill Loss during Unemployment and the Scarring Effects of the COVID-19 Pandemic," Working Papers 202020, University of California at Riverside, Department of Economics.
    11. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," NBER Working Papers 27794, National Bureau of Economic Research, Inc.
    12. à lvaro H. Chaves Castro, 2021. "Análisis sobre la evolución del COVID-19 en Colombia: ¿se alcanzará el pico de contagio?," Tiempo y Economía, Universidad de Bogotá Jorge Tadeo Lozano, vol. 8(1), pages 123-160, January.
    13. Birinci, Serdar & Karahan, Fatih & Mercan, Yusuf & See, Kurt, 2021. "Labor market policies during an epidemic," Journal of Public Economics, Elsevier, vol. 194(C).
    14. Jessica Gallant & Kory Kroft & Fabian Lange & Matthew J. Notowidigdo, 2020. "Temporary Unemployment and Labor Market Dynamics During the COVID-19 Recession," NBER Working Papers 27924, National Bureau of Economic Research, Inc.
    15. Shinnosuke Kikuchi & Sagiri Kitao & Minamo Mikoshiba, 2020. "Who Suffers from the COVID-19 Shocks? Labor Market Heterogeneity and Welfare Consequences in Japan (Forthcoming in the Journal of the Japanese and the International Economies)," CARF F-Series CARF-F-490, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    16. Heather Anderson & Giovanni Caggiano & Farshid Vahid & Benjamin Wong, 2020. "Sectoral Employment Dynamics in Australia and the COVID‐19 Pandemic," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(3), pages 402-414, September.
    17. Kandoussi, Malak & Langot, François, 2020. "The Lockdown Impact on Unemployment for Heterogeneous Workers," IZA Discussion Papers 13439, Institute of Labor Economics (IZA).
    18. Naudé, Wim, 2020. "Entrepreneurial Recovery from COVID-19: Decentralization, Democratization, Demand, Distribution, and Demography," GLO Discussion Paper Series 631, Global Labor Organization (GLO).
    19. Xiaowei Chen & Wing Fung Chong & Runhuan Feng & Linfeng Zhang, 2020. "Pandemic risk management: resources contingency planning and allocation," Papers 2012.03200, arXiv.org.
    20. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," TEPP Working Paper 2021-01, TEPP.
    21. Mitman, Kurt & Rabinovich, Stanislav, 2021. "Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19," CEPR Discussion Papers 15748, C.E.P.R. Discussion Papers.
    22. Eliza Forsythe & Lisa B. Kahn & Fabian Lange & David G. Wiczer, 2020. "Searching, Recalls, and Tightness: An Interim Report on the COVID Labor Market," NBER Working Papers 28083, National Bureau of Economic Research, Inc.
    23. Robert E. Hall & Marianna Kudlyak, 2020. "Unemployed With Jobs and Without Jobs," NBER Working Papers 27886, National Bureau of Economic Research, Inc.

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