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Temporary Unemployment and Labor Market Dynamics during the COVID-19 Recession

Author

Listed:
  • Jessica Gallant

    (University of Toronto)

  • Kory Kroft

    (University of Toronto)

  • Fabian Lange

    (McGill University)

  • Matthew J. Notowidigdo

    (University of Chicago)

Abstract

This paper develops a search-and-matching model that incorporates temporary unemployment and applies the model to study the labor market dynamics of the COVID-19 recession in the United States. We calibrate the model using panel data from the Current Population Survey for 2001-2019, and we find that the model-based job-finding rates match observed job-finding rates during the entire sample period and out of sample up through July 2020. We also find that the Beveridge curve is well behaved and that there is little change in market tightness in 2020 once we use the calibrated model to adjust for changes in the composition of the unemployed. We then use the model to project the path of unemployment over the next eighteen months. Under a range of assumptions about job losses and labor demand, our model predicts a more rapid recovery compared to a model that does not distinguish between temporary and permanent unemployment and compared to professional and academic forecasts. In order to rationalize the professional forecasts of the unemployment rate, some combination of the vacancy rate, the job-separation rate, and the recall rate of workers on temporary layoff must deteriorate substantially in the next several months.

Suggested Citation

  • Jessica Gallant & Kory Kroft & Fabian Lange & Matthew J. Notowidigdo, 2020. "Temporary Unemployment and Labor Market Dynamics during the COVID-19 Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(3 (Fall)), pages 167-226.
    • Handle: RePEc:bin:bpeajo:v:51:y:2020:i:2020-03:p:167-226
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    Cited by:

    1. Congressional Budget Office, 2022. "A Markov-Switching Model of the Unemployment Rate: Working Paper 2022-05," Working Papers 57582, Congressional Budget Office.
    2. Hall, Robert E. & Kudlyak, Marianna, 2022. "The unemployed with jobs and without jobs," Labour Economics, Elsevier, vol. 79(C).
    3. Leonardo Bonilla-Mejía & Luz A. Florez & Didier Hermida & Francisco Lasso & Leonardo Fabio Morales & Juan Jose Ospina & José Pulido, 2023. "Is the COVID-19 Pandemic Fast-Tracking Automation in Developing Countries? Evidence from Colombia," Journal of Human Capital, University of Chicago Press, vol. 17(4), pages 593-616.
    4. Meier, Dennis H. & Thomsen, Stephan L. & Trunzer, Johannes, 2022. "The Financial Situation of Students During the COVID-19 Pandemic," Hannover Economic Papers (HEP) dp-696, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    5. Herzog-Stein, Alexander & Nüß, Patrick & Peede, Lennert & Stein, Ulrike, 2022. "Germany and the United States in coronavirus distress: internal versus external labour market flexibility," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 56, pages 1-11.
    6. Peter Ganong & Fiona Greig & Max Liebeskind & Pascal Noel & Daniel Sullivan & Joseph Vavra, 2021. "Spending and Job Search Impacts of Expanded Unemployment Benefits: Evidence from Administrative Micro Data," Working Papers 2021-19, Becker Friedman Institute for Research In Economics.
    7. Lin William Cong & Ke Tang & Bing Wang & Jingyuan Wang, 2021. "An AI-assisted Economic Model of Endogenous Mobility and Infectious Diseases: The Case of COVID-19 in the United States," Papers 2109.10009, arXiv.org.
    8. Serdar Birinci & Yusuf Mercan & Kurt See, 2024. "Mismatch Unemployment During COVID-19 and the Post-Pandemic Labor Shortages," Research Working Paper RWP 24-10, Federal Reserve Bank of Kansas City.
    9. 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.
    10. Palacios-Lopez,Amparo & Newhouse,David Locke & Pape,Utz Johann & Khamis,Melanie & Weber,Michael & Prinz,Daniel, 2021. "The Early Labor Market Impacts of COVID-19 in Developing Countries : Evidence from High-Frequency Phone Surveys," Policy Research Working Paper Series 9510, The World Bank.
    11. Han, Joseph, 2021. "Who's Hit Hardest? The Persistence of the Employment Shock by the COVID-19 Crisis," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 43(2), pages 23-51.
    12. Gächter, Martin & Huber, Florian & Meier, Martin, 2022. "A shot for the US economy," Finance Research Letters, Elsevier, vol. 47(PA).
    13. Forsythe, Eliza & Kahn, Lisa B. & Lange, Fabian & Wiczer, David, 2022. "Where have all the workers gone? Recalls, retirements, and reallocation in the COVID recovery," Labour Economics, Elsevier, vol. 78(C).
    14. Abdullah Alsharef & Siddharth Banerjee & S M Jamil Uddin & Alex Albert & Edward Jaselskis, 2021. "Early Impacts of the COVID-19 Pandemic on the United States Construction Industry," IJERPH, MDPI, vol. 18(4), pages 1-20, February.
    15. Brad J. Hershbein & Harry J. Holzer, 2021. "The COVID-19 Pandemic's Evolving Impacts on the Labor Market: Who's Been Hurt and What We Should Do," Upjohn Working Papers 21-341, W.E. Upjohn Institute for Employment Research.
    16. Javier Cifuentes-Faura, 2021. "Influence of Economic and Political Variables on the Mortality Rate per Covid-19," European Research Studies Journal, European Research Studies Journal, vol. 0(2B), pages 62-67.
    17. Yang Yang & Albert P. C. Chan & Ming Shan & Ran Gao & Fengyu Bao & Sainan Lyu & Qingwen Zhang & Junfeng Guan, 2021. "Opportunities and Challenges for Construction Health and Safety Technologies under the COVID-19 Pandemic in Chinese Construction Projects," IJERPH, MDPI, vol. 18(24), pages 1-14, December.
    18. Gill, Balbinder Singh & Choi, Jongmoo Jay & John, Kose, 2024. "Firm leverage and employee pay: The moderating role of CEO leadership style," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    19. Gros, Daniel & Ounnas, Alexandre, 2021. "Labour market responses to the Covid-19 crisis in the United States and Europe," CEPS Papers 32985, Centre for European Policy Studies.
    20. Javier Cifuentes-Faura, 2021. "COVID-19 Mortality Rate and Its Incidence in Latin America: Dependence on Demographic and Economic Variables," IJERPH, MDPI, vol. 18(13), pages 1-10, June.
    21. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," Working Papers hal-03107369, HAL.
    22. Olga Pilipczuk, 2021. "Determinants of Managerial Competences Transformation in the Polish Energy Industry," Energies, MDPI, vol. 14(20), pages 1-27, October.
    23. Florin-Valeriu PANTELIMON & Bogdan-Stefan POSEDARU & Elena-Aura GRIGORESCU & Dimitrie-Daniel PLACINTA, 2021. "Labor Market Trends During The COVID-19 Pandemic," Informatica Economica, Academy of Economic Studies - Bucharest, Romania, vol. 25(2), pages 50-63.

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    More about this item

    Keywords

    COVID-19; public health; US economy; labor market dynamics; Beveridge Curve;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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