Labor Markets During Crises and Shocks

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• Department of Economics

This paper documents how labor markets around the world respond to a variety of macroeconomic shocks, including not only recessions but currency crises, stock market crashes, debt defaults, and financial crises. We construct a dataset of harmonised microdata from rotating panel labor force surveys from 38 countries that have experienced 101 recessions and 96 shocks. There is substantial heterogeneity in the average response by region and shock. Countries that experience financial crises or multiple, overlapping crises experience sustained deteriorations of labor market outcomes: employment-population ratios fall by 8 percentage points and only start to improve after 26 quarters, while the long-term unemployment rate rises by 4 percentage points and starts to improve after 24 quarters. Shocks universally hit young, low-earning, and less-educated workers more, but this is particularly true for financial crises and overlapping shocks. These findings have important implications for the implied welfare costs of shocks.