21 Apr 2021

Labour market responses to the Covid-19 crisis in the United States and Europe

Daniel Gros / Alexandre Ounnas

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Labour markets have reacted very differently to the Covid-19 crisis. In the US, the impact on unemployment rates was rapid across all states. They increased sharply in March and April 2020 and recovered steadily thereafter. In Europe, by contrast, unemployment increased far less, and the adjustment was more gradual.

This difference in unemployment responsiveness is most likely a consequence of the widespread use of short-term work schemes in Europe, given that the transatlantic differences in hours worked overall are much smaller than for unemployment.

Using data from US states and EU member states, an econometric analysis of the impact of the restrictions (lockdowns) implemented by governments to contain the spread of the virus reveals that in the case of the US, unemployment appears to have been driven mostly by the aggregate shock generated by the pandemic as it played out between March and November 2020. In the EU, unemployment showed little variation. The Non-Pharmaceutical Interventions (NPIs) used in different US states and EU countries, as can be demonstrated through a regression analysis, did not always have significant effects on unemployment.