Effects of social distancing policy on labor market outcomes

US workers receive unemployment benefits if they lose their job, but not for reduced working hours. In alignment with the benefits incentives, we find that the labor market responded to COVID-19 and related closure-policies mostly on the extensive (12 pp outright job loss) margin. Exploiting timing variation in state closure-policies, difference-in-differences (DiD) estimates show, between March 12 and April 12, 2020, employment rate fell by 1.7 pp for every 10 extra days of state stay-at-home orders (SAH), with little effect on hours worked/earnings among those employed. Forty percentage of the unemployment was due to a nationwide shock, rest due to social-distancing policies, particularly among non-essential workers.

Automated summary

US workers can receive unemployment benefits if they lose their job, but not for reduced working hours. The labor market responded to the COVID-19 pandemic and closure policies mainly through extensive job losses. By analyzing the timing of state stay-at-home orders, it was found that for every 10 extra days of these orders, the employment rate fell by 1.7 percentage points, with little impact on working hours and earnings of those who remained employed. About 40% of the unemployment was caused by a nationwide shock, while the rest was due to social-distancing policies, especially among non-essential workers.