Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/271955 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10311
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We examine the labor market consequences of recent global supply chain disruptions induced by COVID-19. Specifically, we consider a temporary increase in international trade costs similar to the one observed during the pandemic and analyze its effects on labor market outcomes using a quantitative trade model with downward nominal wage rigidities. Even omitting any health-related impacts of the pandemic, the increase in trade costs leads to a temporary but prolonged decline in U.S. labor force participation. However, there is a temporary increase in manufacturing employment as the United States is a net importer of manufactured goods, which become costlier to obtain from abroad. By contrast, service and agricultural employment experience temporary declines. Nominal frictions lead to temporary unemployment when the shock dissipates, but this depends on the degree of monetary accommodation. Overall, the shock results in a 0.14% welfare loss for the United States. The impact on labor force participation and welfare across countries varies depending on the initial degree of openness and sectoral deficits.
Subjects: 
supply chain disruptions
trade costs
downward nominal wage rigidity
JEL: 
F10
F11
F16
F40
F66
Document Type: 
Working Paper
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