CFCM 20/06 Twin peaks: Covid-19 and the labour market

Summary

This paper develops a choice-theoretic equilibrium model of the labour market in the presence of a pandemic. It includes heterogeneity in productivity, age and the ability to work at home. Worker and firm behaviour changes in the presence of the virus, which itself has equilibrium consequences for the infection rate. The model is calibrated to the UK and counterfactual lockdown measures are evaluated. We find a different response in both the evolution of the virus and the labour market with different degrees of severity of lockdown. We use these insights to make a labour market policy prescription to be used in conjunction with lockdown measures. Finally we find that, while the pandemic and ensuing policies impact the majority of the population negatively, consistent with recent studies, the costs are not borne equally. While the elderly face the highest health risks, it is the young low wage workers who suffer the most income and employment risk.  

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Authors

Jake Bradley, Alessandro Ruggieri and Adam Spencer

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