Half of Pandemic Layoffs Will Result in Permanent Job Loss

Even if the crisis is resolved quickly, many pandemic-induced shifts in consumer demand and business will linger. Therefore, they conclude that the reallocation of labor is likely to persist and estimate that 42% of recent pandemic-induced layoffs will result in permanent job loss.

The Hutchins Institute says that with large parts of the economy shut down, some firms are expanding in response to pandemic-induced demand shifts. Jose Maria Barrero from the Autonomous Technological Institute of Mexico, Steven J. Davis from the University of Chicago, and Nicholas Bloom from Stanford find that the COVID-19 shock caused three new hires in the near term for every 10 layoffs.

Using firm-level employment and sales forecasts at a one-year horizon in the Survey of Business Uncertainty, they create forward-looking measures of the reallocation of jobs and sales.

Comparing changes to firms’ expectations before and after the onset of the pandemic, they find that the expected reallocation rate— the volume of cross-firm reallocation in excess of the amount needed to accommodate the aggregate net change—is 2.4 times larger than the pre-COVID average for jobs. Worse, it is 3.9 times larger than the pre-COVID average for sales.

The authors say that even if the crisis is resolved quickly, many pandemic-induced shifts in consumer demand and business will linger. Therefore, they conclude that the reallocation of labor is likely to persist and estimate that 42% of recent pandemic-induced layoffs will result in permanent job loss.