Effects of Social Distancing Policy on Labor Market Outcomes

49 Pages Posted: 2 Jun 2020 Last revised: 15 Jan 2022

See all articles by Sumedha Gupta

Sumedha Gupta

Department of Economics, IUPUI

Laura Montenovo

Indiana University

Thuy Dieu Nguyen

Indiana University Bloomington

Felipe Lozano-Rojas

University of Georgia

Ian M. Schmutte

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Kosali Ilayperuma Simon

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); National Bureau of Economic Research (NBER)

Bruce A. Weinberg

Ohio State University (OSU) - Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Coady Wing

Indiana University

Date Written: May 2020

Abstract

This paper examines the impact of the social distancing policies states adopted between March and April of 2020 in response to the COVID-19 epidemic. These actions, together with voluntary social distancing, appear to have reduced the rate of new COVID-19 cases and deaths, but raised concerns about the costs experienced by workers and businesses. Estimates from difference-in-difference models that leverage cross-state variation in the timing of business closures and stay-at-home mandates suggest that the employment rate fell by about 1.7 percentage points for every extra 10 days that a state experienced a stay-at-home mandate during the period March 12-April 12, 2020; select business closure laws were associated with similar employment effects. Our estimates imply that about 40% of the 12 percentage point decline in employment rates between January and April 2020 was due to a nationwide shock while about 60% was driven by state social distancing policies. The negative employment effects of state policies were larger for workers in "non-essential" industries, workers without a college degree, and early-career workers. Policy caused relatively modest changes in hours worked and earnings among those who remain employed. We find no concerning evidence of pre-trends in the monthly (low-frequency) CPS data, but use high-frequency data on work-related mobility measured from cellphones, job-loss-related internet searches, and initial unemployment claims to investigate the possibility that the large employment effects experienced in April could have occurred after the March CPS but but before policy adoption. In those analyses, we find pre-trends for some outcomes but not others. Thus we cannot fully rule out that some employment effects shortly predated the policies. As states relax business closures, ensuring gains in labor market activities in ways that continue to mitigate COVID-19 "surges" and public health risks will be key considerations to monitor.

Suggested Citation

Gupta, Sumedha and Montenovo, Laura and Nguyen, Thuy Dieu and Lozano-Rojas, Felipe and Schmutte, Ian M. and Simon, Kosali Ilayperuma and Weinberg, Bruce A. and Wing, Coady, Effects of Social Distancing Policy on Labor Market Outcomes (May 2020). NBER Working Paper No. w27280, Available at SSRN: https://ssrn.com/abstract=3615476

Sumedha Gupta (Contact Author)

Department of Economics, IUPUI ( email )

425 University Boulevard
Indianapolis, IN 46202-5140
Germany

Laura Montenovo

Indiana University

107 S Indiana Ave
100 South Woodlawn
Bloomington, IN 47405
United States

Thuy Dieu Nguyen

Indiana University Bloomington ( email )

Felipe Lozano-Rojas

University of Georgia ( email )

Baldwin Hall, 355 S Jackson St
204
Athens, GA 30602
United States
812 9296717 (Phone)

HOME PAGE: http://felipelozanorojas.com

Ian M. Schmutte

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

HOME PAGE: http://people.terry.uga.edu/schmutte/

Kosali Ilayperuma Simon

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bruce A. Weinberg

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States
614-292-6701 (Phone)
614-292-3906 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Coady Wing

Indiana University ( email )

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