Labor Market Performance During the COVID-19 Pandemic: State Policy, Compliance, and Social Behavior

The outbreak of the COVID-19 pandemic in late February 2020 in the United States constituted an unprecedented economic shock, in addition to the tragic loss of life, and sparked a rapidly growing literature on the economic implications. Exploiting county-level data in the U.S. from January – August 2020, this paper examines labor market performance in structurally similar counties situated along state borders that were exposed to varying degrees of nonpharmaceutical interventions. The analysis yields two main results. First, it finds that imposing the most stringent measures possible increases the unemployment rate by 3.9 percentage points. Second, compliance with non-pharmaceutical state interventions matters: compliance is proxied by counties’ voting in the 2016 presidential election. The unemployment effect in Republican counties is less than one percentage point, whereas it amounts to a much larger five percentage points in Democratic counties. As with other public policies, these findings underscore the importance of designing non-pharmaceutical interventions with a view to broad public compliance and enforceability to avoid free-riding.

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