Measuring Sectoral Supply and Demand Shocks during COVID-19

RePEc Short ID: pfa225
ORCID iD: 0000-0002-3759-2172

Brinca, Pedro; Duarte, Joao B.; Faria-e-Castro, Miguel

doi:10.20955/wp.2020.011

Working Paper

Measuring Sectoral Supply and Demand Shocks during COVID-19

Abstract: We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak, by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages and applying the methodology proposed by Baumeister and Hamilton (2015). Our estimates suggest that two-thirds of the 16.24 percentage point drop in the growth rate of hours worked in April 2020 are attributable to supply. Most sectors were subject to historically large negative labor supply and demand shocks in March and April 2020, but there is substantial heterogeneity in the size of these shocks across sectors. Leisure and Hospitality was particularly affected. We find positive labor demand shocks for sectors such as Retail Trade, and Information in March 2020 that vanish in April 2020. We show that our estimates of supply shocks are correlated with sectoral measures of telework.

Keywords: Supply and Demand Shocks; COVID-19; Structural Vector Autoregressions; Sign Restrictions;

JEL Classification: E24; E30; J20;

https://doi.org/10.20955/wp.2020.011

Status: Published in European Economic Review