In this paper, we provide evidence that the early labor market effects of COVID- 19 have been concentrated on subsets of the workforce already negatively hit by the recent wave of structural change in the occupation and skills of workers. We document that the occupation and education composition of furloughed workers in Denmark is concentrated among individuals with low education or vocational training, as well as specific occupational groups that were on the decline before the crisis hit. Our results strengthen the hypothesis that COVID-19 will accelerate the ongoing structural transitions in the economy.
Mattana, E, V Smeets and F Warzynski (2022), ‘Changing Skill Structure and COVID-19‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_408805
The COVID-19 pandemic and associated policy responses triggered a historically large wave of capital reallocation between markets, asset classes, and industries. Using high-frequency country-level data, we examine if and how the number of infections, the stringency of the lockdown, and the fiscal and monetary policy response determined the
dynamics of portfolio flows, market-implied sovereign risk, and stock prices. We find that these factors played an important role, particularly for emerging markets. Our results indicate that domestic infections had an initial negative impact on flows. Cumulatively, however, the effect was positive and reflected increased demand for financing by
affected economies. We also find that both lockdown and fiscal measures supported portfolio flows, driven by an increased supply of funds. Bonds, not equities, were the primary driver of portfolio flows, highlighting a pattern of reallocation to safety. Finally, we show that monetary policy loosening in developed markets led to a cumulative decline in flows, as investors searched for higher yield
ElFayoumi, K and M Hengge (2020), ‘Capital Markets, COVID-19 and Policy Measures‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_408806
This paper casts some light on the impact of regulatory restrictions on the movement of people across international borders, implemented on health and safety grounds following the COVID-19 outbreak, on services trade costs using some illustrative scenarios where all the countries are assumed to close their borders to passengers, but leave freight trade open. Services trade costs are estimated to increase by an average of 12% of export values across sectors and countries in the medium term in such a hypothetical scenario. The analysis identifies a large variability in the increase in services-trade costs across sectors and across countries, reflecting the stringency of initial regulations and the relative importance of business travel and labour mobility to international services trade.
Benz, S, F Gonzales and A Mourougane (2020), ‘The impact of COVID-19 international travel restrictions on services-trade costs: some illustrative scenarios‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_390600
Social distancing is a matter of individualsâ€™ choices as well as of regulation, and regulation arguably responds to those choices. We analyse weekly panel data on such behaviour for English Upper Tier Local Authorities (UTLAs) from March to July 2020, paying attention to the influence of poverty, as measured by free school meals provision. Panel regressions suggest that, although more stringent regulation and slightly lagged local cases of infection increase social distancing, both effects are weaker in UTLAs with higher levels of poverty. Thus motivated, we develop a two-class (rich/poor) model, in which a Nash non-cooperative equilibrium arises from individual choices in a regulatory regime with penalties for non-compliance. The model yields results in keeping with the empirical findings, indicating the desirability of generous measures to furlough workers in low-paid jobs as a complement to the stringency of general regulation.
Basu, P, C Bell and T Edwards (2020), ‘COVID Social Distancing and the Poor: An Analysis of the Evidence for England‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_390601
We use monthly and daily transaction data from Iran, disaggregated by provinces, good and service categories, and retail store segments to gauge the impact of government emergency loans on consumption patterns. We find that emergency loans are positively related with higher consumption of non-durable and semi-durable goods, suggesting that the emergency loans were predominantly used for their intended purpose. The effects were strongest in the first few days and then dissipated over time. We find effects only for in-store but not online transactions and in poorer rather than richer provinces, suggesting that it is the poorer who reacted more strongly with higher consumption to the emergency loans.
Beck, T and M Hoseini (2020), ‘Emergency loans and consumption â€“ evidence from COVID-19 in Iran‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_390807
This paper documents that the employment effects of financial aid to U.S. states during the Great Recession were strongly unevenly distributed across sectors. We show that state fiscal relief had a double dividend: not only did it preserve a substantial number of jobs, but it also fostered employment most strongly in the sectors hit hardest by the recession. We exploit differences in the distribution of recessionary job losses across states to draw conclusions for the Covid-19 recession. Our results suggest that the double dividend of state fiscal relief cannot be taken for granted.
Bredemeier, C, F Juessen and R Winkler (2020), ‘Sectoral Employment Effects of State Fiscal Relief: Evidence from the Great Recession, Lessons for the Covid-19 Crisis‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_390602
The COVID-19 pandemic causes sharp reductions in economic output and sharp increases in government expenditures. This increases the riskiness of sovereign borrowing both domestically and internationally. We propose a framework to study debt sustainability by introducing domestic debt into a sovereign default model, in which the government sets distortionary labour taxes and decides whether to repay its past domestic and foreign obligations. The results show, that foreign default is more likely after a negative productivity shock, while domestic default is more likely after a negative expenditure shock. Even in the case of a recently proposed broad restructuring of foreign debt, governments may still selectively default on their domestic debt obligations.
Paczos, W and K Shakhnov (2020), ‘Defaulting on Covid Debt‘, COVID Economics 45, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-45#392514_392921_390603