The pandemic that started in 2020 has led to the first world-wide economic downturn in recent times triggered by a deadly virus. As the outbreak of COVID-19 commenced, governments were confronted with the dilemma of how to balance the economic and health costs of a surge in COVID-19 cases versus the costs of preventive health measures to stop the spread of the virus. This study analyses the effect of the COVID-19 outbreak on the Dutch labour market at a regional level, where there may be two complementary mechanisms.
First, there is a direct economic effect arising from the population’s health concerns due to COVID-19, which may differ by location, as people living in so-called COVID-19 hotspot areas may be more aware of the presence and detrimental consequences of the virus. As a result, they would take voluntary preventive measures of social distancing more seriously, which is likely to have a negative impact on social activity and the labour market. Second, the indirect economic effect through (regional) enforced lockdown and social distancing regulations by the government in response to the virus would lead to an immediate loss of the economic activities that are no longer allowed, and a negative impact on labour market outcomes of workers who can be dismissed easily.
Using weekly administrative panel microdata representative of Dutch employees until the end of March 2020, we study whether individual labour market outcomes, as measured by employment, working hours and hourly wages, were more strongly affected in provinces where COVID-19 confirmed cases, hospitalizations and mortality were relatively high. The evidence shows that the COVID-19 outbreak, on average, had reduced employment by 2 percentage points, working hours by 1.5 per cent and hourly wages by 0.3 per cent, by the last week of March 2020. We do not observe a region-specific impact of COVID-19 on labour market outcomes. The results show that individual characteristics are more important, including the employee’s age, type of contract and type of job.
The evidence suggests that the decline of the labour market was all due to the impacts from the government-enforced lockdown and higher virus case numbers did not reinforce this decline. Our study suggests that preventive health measures should be at the regional level, isolating hotspots from low-risk areas. Taken together, our findings are relevant for policy makers, as they reveal the impact of a national lockdown and inform which subgroups of employees are negatively affected by the COVID-19 outbreak in terms of individual labour market outcomes.