The Effect of Employment Shocks on Earnings: Evidence from the Covid-19 Pandemic

Economic research has documented significant short, medium, and long-term labor market consequences following recessions (Goodman & Mance, 2011; Yagan, 2017; Farber, 2011). The Covid-19 recession triggered an unprecedented economic downturn, disproportionately impacting employment in industries with high concentrations of low-income and female workers. In this paper, I leverage the substantial spatial variation in employment shocks to examine their effects on earnings and employment outcomes in both the short and medium terms. I find remarkably stable trends in earnings and employment when comparing counties experiencing high employment shocks with those that did not. Although these results differ from previous recessions, they underscore the critical role played by fiscal support policies implemented during the pandemic.