Economic anxiety is likely to affect households’ expectations and, by consequence, their consumption (Roth and Wohlfart 2020). Real-time measures of the uncertainties perceived by economic agents and sudden shifts therein are thus vital for the formulation of effective stabilisation and recovery policies. Therefore, the existing early-warning indicators in the policymakers' toolbox are being expanded or new ones proposed (Baker et al. 2020, Müller and Hornig 2020). Internet searches, for instance, serve as a measure of economic sentiment among households and thus expectations. In response to the recent crisis, the European Commission, for example, has actively monitored citizens’ health, economic and social isolation concerns using Google search data.1
In a recent paper (van der Wielen and Barrios 2020), we investigate how the outbreak of the COVID-19 pandemic and ensuing Great Lockdown affected EU households’ economic uncertainty. To this end, we employ a rich dataset of country-specific internet searches in the EU. To capture the difference in search intensity before and after the onset of the crisis, we merge data on the number of confirmed cases, active cases and COVID-19 related deaths from the Johns Hopkins University database. Doing so, we can determine the cut offs for the pre- and post-COVID outbreak periods.2
Economic anxiety and employment
As the pandemic hits European countries, concerns about an impeding recession rise substantially across Europe, as evidenced by the difference-in-difference estimates shown in Figure 1, with peaks up to three weeks after the first COVID cases.3 A significant increase in the searches for “telework” is also observed, as households try to accommodate to the lockdown measures, while those for durable goods drops significantly. These shifts are a troublesome harbinger. Fetzer et al. (2020), for example, found that real GDP growth and real growth in consumption and imports are significantly lower, both in a statistical and economic sense, in quarters following increases in searches for "recession".
Figure 1 Marginal impact on search intensity by week (relative to 3-cases cut-off) from DiD-model and their 95% confidence intervals
The finding that recession and unemployment concerns remained significantly larger up to six weeks after the arrival of the virus confirms the more pessimistic unemployment expectations following the virus outbreak observed in the US (Binder 2020) and the surge of unemployment-related searches in Europe after the lockdown (Caperna et al. 2020).
The coefficient for the search queries on job boards and employment agencies follow the same trend, suggesting a 30% drop in interest relative to the pre-corona period. Consequently, our results extend to the EU the earlier (survey-based) findings for the UK and the US. Coibion et al. (2020), for example, conclude that US citizens who have lost their jobs are not actively looking to find a new one.
Short-term working schemes
In addition to increases in comparatively generic searches, we also observe consistent spikes in queries for very specific wage compensation schemes, such as the Cassa Integrazione in Italy, Kurzarbietergeld in Germany, chômage partiel in France and the ERTE (expedientes de regulación temporal de empleo) in Spain. Figure 2 plots the monthly search intensity for some of the most well-known short-term work schemes in Europe.4
Figure 2 Google searches for pre-existing short-term work schemes during the Great Recession and Great Lockdown
The comparatively large increase in short-term work searches does not seem to have curtailed overall recession fears, relative to the Great Recession. Given the potential for short-term work schemes to save jobs (Boeri and Bruecker 2011, Balleer et al. 2016, Lydon et al. 2019), one might expect their availability to (indirectly) diminish economic anxiety, especially in light of their recent extensions (e.g. Schnetzer et al. 2020). Estimating the search intensity for “recession” or “unemployment” around the peaks of the crises during both the Great Recession and Great Lockdown, we observe no significant differences in responses between those countries that had short-term work schemes in place and those that did not (Figure 3). While this does not have to affect the ability of such schemes to save jobs, it supports the idea that the labour market impact of this crisis is more pervasive, at least in people’s minds, which might heighten the risk of unemployment hysteresis in countries most directly affected by the pandemic.
Figure 3 Marginal impact on search intensity by month (relative to crisis peak) from DiD-model and their 95% confidence intervals, split by presence of a short-term work scheme (yes = blue, no = grey)
Statistically, the biggest difference between the countries with and without short-term work schemes in place is observed in terms of unemployment concerns during the Great Recession (see panel c of Figure 3), during which countries with schemes in place portrayed significantly less anxiety. This result, however, does not extend to the Great Lockdown, despite the regained attention (and general deployment of) for such schemes.
Furthermore, while there is little to no difference between countries with and without short-term work schemes, the difference in unemployment concerns between the two crises is striking, lending support to the idea that the labour market impact of this crisis is more pervasive.
Divergence across countries
The impact of the pandemic on economic anxiety is found to be substantially larger in those countries hit hardest in economic terms. In particular, we distinguish between those countries with the relatively largest revisions (more than 5.5 percentage points) to their GDP growth.6 Concerns about an impeding recession were significantly larger in those countries expected to be hit hardest economically in the course of 2020.
The evidence also suggests that the anxiety related to the employment consequences of the COVID-19 crisis reflects to some extent the pre-crisis performance of country-specific labour markets. Figure 4 plots the difference in the average search intensity before and after the crisis by country. The figure reveals an interesting pattern, in particular concerning the perceived risk of unemployment, which is especially high in countries with high pre-crisis level of unemployment (possibly with the exception of Belgium and Luxembourg). The population-weighted unemployment rates before the COVID-19 crisis (i.e. as of February 2020)7 shows a clear differential pattern between the four country groups considered: those countries with the highest search intensity for “unemployment” (displayed in red) had an average unemployment rate of 10.3%, while the other country groups had average unemployment rates of 7.5% (orange), 4.7% (dark yellow) and 3.4% (light yellow), respectively.
Figure 4 Difference between the average Google searches for unemployment before and after the Corona outbreak
The recent health crisis and ensuing Great Lockdown came with an extraordinary level of economic uncertainty. This is especially the case for unemployment-related fears, which have recently jumped far beyond those observed during the Great Recession. Such trends are not to be taken lightly. Anxiety, for instance, is likely to affect expectations and (future) consumption. In fact, we observe a significant, coinciding slowdown in labour markets and (durable) consumption.
Our analysis also shows that the ensuing fear was significantly more outspoken in those EU countries hit hardest in economic terms. As these countries’ labour market conditions were often already less favourable at the onset of the crisis, the risk of a widening gap between EU member states thus seems likely in the absence of a (coordinated) policy response.
The comparatively large increase in searches for short-term work schemes did not seem to have mitigated the countries’ overall economic anxiety. This is somewhat surprising, since we did find suggestive evidence that countries with such schemes in place portrayed less unemployment-related anxiety during the Great Recession. These findings do not put into question the need for short-term work schemes and the SURE initiative (Vandenbroucke et al. 2020) nor the ability of policy interventions to cushion the impact of the crisis on inequality and poverty (Almeida et al., 2020). On the contrary, they highlight the exceptional labour market concerns (vis-à-vis the Great Recession), relevant for the design of an appropriate policy response.
Almeida, V, S Barrios, M Christl, S De Poli, A Tumino and W van der Wielen (2020), “Households' income and the cushioning effect of fiscal policy measures during the Great Lockdown”, JRC Working Papers on Taxation and Structural Reforms No 06/2020, European Commission.
Baker, S, N Bloom, S Davis and S and Terry (2020), "COVID-induced economic uncertainty and its consequences", VoxEU.org, 13 April.
Balleer, A, B Gehrke, W Lechthaler and C Merkl (2016), “Does short-time work save jobs? A business cycle analysis”, European Economic Review 84(C): 99-122.
Binder, C (2020), “Coronavirus Fears and Macroeconomic Expectations”, Review of Economics and Statistics, forthcoming.
Boeri, T and H Bruecker (2011), “Short‐time work benefits revisited: some lessons from the Great Recession”, Economic Policy 26(68): 697-765.
Caperna, G, M Colagrossi, A Geraci and G Mazzarella (2020), “Googling Unemployment During the Pandemic: Inference and Nowcast Using Search Data”, JRC Working Papers in Economics and Finance No 04/2020, European Commission.
Coibion, O, Y Gorodnichenko and M Weber (2020), “Labor markets during the COVID-19 crisis: A preliminary view”, NBER Working Paper 27017.
Fetzer, T, L Hensel, J Hermle and C Roth (2020), “Coronavirus Perceptions and Economic Anxiety”, Review of Economics and Statistics, forthcoming.
Lydon, R, T Y Mathä and S Millard (2019), “Short-time work in the Great Recession: firm-level evidence from 20 EU countries”, IZA Journal of Labor Policy 8(1): 1-29.
Müller, H and N Hornig (2020), "Covid-19: How to build better Early Warning Systems", VoxEU.org, 10 July.
Roth, C and J Wohlfart (2020), “How do expectations about the macroeconomy affect personal expectations and behavior?”, Review of Economics and Statistics, forthcoming.
Schnetzer, M, D Tamesberger and S Theuri (2020), “Mitigating mass layoffs in the COVID-19 crisis: Austrian short-time work as international role model”, VoxEU.org, 7 April.
Vandenbroucke, F, L Andor, R Beetsma, B Burgoon, G Fischer, T Kuhn, C Luigjes and F Nicoli (2020), “The European Commission’s SURE initiative and euro area unemployment re-insurance”, VoxEU.org, 6 April.
van der Wielen, W and S Barrios (2020), “Fear and Employment During the COVID Pandemic: Evidence from Search Behaviour in the EU”, JRC Working Papers on Taxation and Structural Reforms No 08/2020, European Commission.
1 See all weekly reports at https://ec.europa.eu/knowledge4policy/projects-activities/tracking-eu-citizens%E2%80%99-concerns-using-google-search-data_en
2 As the default, we consider observations as post-outbreak when the number of confirmed cases exceeds 3. However, this seems to push forward France and Germany, hence we also tested and confirmed robustness of our results to a higher cut off (20 confirmed cases), which is more constant across countries. Alternatively, we set the cut off based on the number of COVID-related deaths (exceeding 10), since this is likely to be more disconcerting to people.
3 In line with expectations, we observe earlier hikes in those countries hit earlier in the year, e.g. Italy.
4 The series plotted do not allow for a comparison of the demand for each country’s short-term work system. The series are relative. The series are indexed at 100 on the moment the searches peak. For example, both the unadjusted ERTE and Kurzarbeit series would peak at the same level, even if these peaks may represent different search volumes.
5 The subset of countries with STWs in place includes Belgium, Germany, Denmark, Spain, Finland, France, Italy, Luxembourg and the Netherlands.
6 This subset includes (in order of the size of the revision): Italy, Spain, Greece, France, Croatia, Belgium, Lithuania, the Netherlands and Germany. The GDP growth revision is computed as the difference between the 2020 growth rate in the European Commission’s Spring Forecast minus the one originally foreseen (before the crisis) in the Autumn Forecast.
7 Source: Eurostat.