COVID-19 has had a major impact on the labor market, affecting all sectors. The outbreak has caused a significant drop in manufacturing employment, while service sector employment has recovered. However, there is some evidence that the manufacturing impact may be proportional to the overall number of isolated patients.
There are two basic causes for the contraction in employment. These are the common effect and the regional effect. EAPS (Economically Active Population Survey) data indicate that COVID-19 had a strong impact on private sector employment, with a 22% decline.
A “common” effect refers to general domestic factors such as the fear of infection as the disease travels and the government’s measures to limit social distancing. In Sweden, Karlsson, Nilsson, and Pichler (2014, p.1) exploit variation in incidence rates across Swedish regions. This results in a statistically significant surge in instability.
On the other hand, a regional effect is a local effect based on the regional impact of the COVID-19 pandemic. A sharp increase in confirmed cases in a specific region, such as Daegu, may have led to fears of the spread of the disease in other regions.
Using this methodology, Correia, Luck, and Verner (2020, p.2) estimate that the overall effects of the 1918 flu pandemic were larger in the manufacturing and service industries than in the private sector. They note that the effects were also more pronounced for younger workers than for older ones.
In addition, the effects were not equally distributed throughout the economy. This was especially true in the service industry, where early effects on employment were greater than in the manufacturing sector.
