Epidemic–economic complexity of COVID-19 policies across skill groups and geographies

ABSTRACT

The COVID-19 pandemic has threatened public health and socio-economic activities across societal groups and geographies. We analyse the complex interplay between epidemic and economic factors using a structural panel vector autoregressive (PVAR) approach for Danish municipalities. Findings indicate that the pandemic shock and associated public health interventions led to significant increases in unemployment rates. Wage compensations reduce regional unemployment through both a direct local effect and indirect spatial spillovers. Decomposing the unemployment rate by skill, we find that the response to an increase in wage compensations is only significant for low-skilled persons and that it is larger in urban compared with rural settings.

KEYWORDS:

• COVID-19 crisis
• unemployment rate
• wage compensation policy
• skill groups
• urban–rural differences
• panel vector autoregressive (PVAR) model

JEL:

• C21
• H12
• I15
• R12
• R23

ACKNOWLEDGEMENTS

We thank the Danish Business Authority for data on wage compensation, and valuable input from three anonymous reviewers.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. Countrywide lockdowns occurred on 18 March and 25 December 2020. Local lockdown applied to three urban municipalities and another to seven municipalities in northern Jutland, which we control for in our estimation, that is, variables ‘Local lockdowns Copenhagen (CP), Aarhus (AH), Odense (OD) (Aug-Sept 2020)’ and ‘Lockdown northern Jutland (Nov-Dec 2020)’.

2. Dall Schmidt (2008) offers evidence for Denmark on regional transfers, but not related to labour markets and pandemics.

3. Statens Serum Institut, COVID-19 Dashboard (arcgis.com) (accessed on 5 August 2021).

4. Google COVID-19 Community Mobility Report, COVID-19 Community Mobility Reports (google.com) (accessed on 5 August 2021).

5. See www.statistikbanken.dk (accessed on 5 August 2021).

6. Specifically, we use the series AUF01 from www.statistikbanken.dk (accessed on 5 August 2021).

7. For information, see https://dataforsyningen.dk/.

8. Stylized facts of wage compensation developments are also provided in Figures B2 and B3 in Appendix B in the supplemental data online.

Additional information

Funding

This research, through the SOEP-LEE2 project, is part funded by dtec.bw – Digitalization and Technology Research Center of the Bundeswehr, which we gratefully acknowledge. dtec.bw is funded by the European Union – NextGenerationEU.