The Economic Ripple Effects of COVID-19

What are the effects of a large temporary shock to the economy such as a temporary lockdown in response to a pandemic? Are the effects propagated and made persistent by firms’ deteriorating balance sheets and labor market frictions? This paper deve...

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Main Authors:	Buera, Francisco J., Fattal Jaef, Roberto N., Neumeyer, P. Andres, Hopenhayn, Hugo, Shin, Yongseok
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2021
Subjects:	CORONAVIRUS COVID-19 LOCKDOWN ECONOMIC SHOCK LABOR MARKET EMPLOYMENT FIRM DYNAMICS EMPLOYMENT SUBSIDY RESOURCE REALLOCATION
Online Access:	http://documents.worldbank.org/curated/en/969291618422677105/The-Economic-Ripple-Effects-of-COVID-19 http://hdl.handle.net/10986/35453

id	okr-10986-35453
recordtype	oai_dc
spelling	okr-10986-354532022-09-20T00:09:38Z The Economic Ripple Effects of COVID-19 Buera, Francisco J. Fattal Jaef, Roberto N. Neumeyer, P. Andres Hopenhayn, Hugo Shin, Yongseok CORONAVIRUS COVID-19 LOCKDOWN ECONOMIC SHOCK LABOR MARKET EMPLOYMENT FIRM DYNAMICS EMPLOYMENT SUBSIDY RESOURCE REALLOCATION What are the effects of a large temporary shock to the economy such as a temporary lockdown in response to a pandemic? Are the effects propagated and made persistent by firms’ deteriorating balance sheets and labor market frictions? This paper develops a model with financial market and labor market frictions to answer these questions. The model makes quantitative predictions about the effect on output, employment and firm dynamics from lockdowns of varying magnitude and duration. It finds that the effects are not persistent despite the deterioration of the financial soundness of non-essential firms and labor market frictions, if (i) laid-off workers can be recalled by their previous employers without having to go through the frictional labor market and (ii) the government provides employment subsidies to firms during lockdown. However, the effect are heterogeneous and young non-essential firms are disproportionately affected. In addition, if lockdowns lead to more permanent reallocation across industries, the recession becomes more protracted. 2021-04-19T20:53:04Z 2021-04-19T20:53:04Z 2021-04 Working Paper http://documents.worldbank.org/curated/en/969291618422677105/The-Economic-Ripple-Effects-of-COVID-19 http://hdl.handle.net/10986/35453 English Policy Research Working Paper;No. 9631 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	CORONAVIRUS COVID-19 LOCKDOWN ECONOMIC SHOCK LABOR MARKET EMPLOYMENT FIRM DYNAMICS EMPLOYMENT SUBSIDY RESOURCE REALLOCATION
spellingShingle	CORONAVIRUS COVID-19 LOCKDOWN ECONOMIC SHOCK LABOR MARKET EMPLOYMENT FIRM DYNAMICS EMPLOYMENT SUBSIDY RESOURCE REALLOCATION Buera, Francisco J. Fattal Jaef, Roberto N. Neumeyer, P. Andres Hopenhayn, Hugo Shin, Yongseok The Economic Ripple Effects of COVID-19
relation	Policy Research Working Paper;No. 9631
description	What are the effects of a large temporary shock to the economy such as a temporary lockdown in response to a pandemic? Are the effects propagated and made persistent by firms’ deteriorating balance sheets and labor market frictions? This paper develops a model with financial market and labor market frictions to answer these questions. The model makes quantitative predictions about the effect on output, employment and firm dynamics from lockdowns of varying magnitude and duration. It finds that the effects are not persistent despite the deterioration of the financial soundness of non-essential firms and labor market frictions, if (i) laid-off workers can be recalled by their previous employers without having to go through the frictional labor market and (ii) the government provides employment subsidies to firms during lockdown. However, the effect are heterogeneous and young non-essential firms are disproportionately affected. In addition, if lockdowns lead to more permanent reallocation across industries, the recession becomes more protracted.
format	Working Paper
author	Buera, Francisco J. Fattal Jaef, Roberto N. Neumeyer, P. Andres Hopenhayn, Hugo Shin, Yongseok
author_facet	Buera, Francisco J. Fattal Jaef, Roberto N. Neumeyer, P. Andres Hopenhayn, Hugo Shin, Yongseok
author_sort	Buera, Francisco J.
title	The Economic Ripple Effects of COVID-19
title_short	The Economic Ripple Effects of COVID-19
title_full	The Economic Ripple Effects of COVID-19
title_fullStr	The Economic Ripple Effects of COVID-19
title_full_unstemmed	The Economic Ripple Effects of COVID-19
title_sort	economic ripple effects of covid-19
publisher	World Bank, Washington, DC
publishDate	2021
url	http://documents.worldbank.org/curated/en/969291618422677105/The-Economic-Ripple-Effects-of-COVID-19 http://hdl.handle.net/10986/35453
_version_	1764483065052135424

The Economic Ripple Effects of COVID-19

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