COVID-19, lockdown and labor uncertainty

In this paper, we investigate the impact of containment and closure poli- cies amid the COVID-19 pandemic on the labor market. We show that these effects depend on the presence of labor uncertainty. In the absence of labor uncertainty, the containment and closure policy resulted in people applying fewer self-protection measures, facing lower income and saving more. We predict that workers will lose their job as a consequence of this policy if and only if the containment elasticity of labor demand is sufficiently large. By contrast, when labor uncertainty is introduced, our model predicts more self-protection, more job loss and fewer savings as a result of a lockdown. In addition, income loss occurs if and only if the elasticity of labor demand is large enough. We test our predictions by employing new survey data collected on representative samples across 6 countries: China, Japan, South Korea, Italy, the UK, and the U.S. The survey collected information from households about their work and living situations and their income and socio-demographic characteristics. We find that young, low-income workers and urban dwellers are more vulnerable to containment and closure policies as they are more likely to lose their jobs and income. More importantly, our data provides supporting evidence to all of the predictions of our model.