By Joseph Han, Fellow at KDI

※ This article is part of KDI Journal of Economic Policy, May 2021

The COVID-19 crisis in 2020 had unprecedented impacts on the labor market. Although the spread of the novel coronavirus is predicted to recede in 2021 once a significant portion of the population is vaccinated, there remains a substantial amount of uncertainty over how long the pandemic will continue. It is also likely that the labor market impacts of the health crisis will outlast the pandemic. It is necessary to assess the impacts of the COVID-19 crisis to understand this unusual crisis and to identify particularly vulnerable groups during the pandemic and beyond it.

A distinctive feature of the pandemic-induced recession, besides the sheer size of its labor market impact, can be found in the temporal dimension. First, the impacts on the labor market were highly concentrated in the initial phase. Immediately after the initial outbreak, the number of jobs plummeted at an unprecedented speed. Second, the employment shocks due to the COVID-19 crisis consisted of persistent and transitory components. Although employment partially recovered after the initial outbreak had calmed down, the rebound was far short of the pre-pandemic level, showing signs of persistence. To fully understand the unequal burden of the pandemic, it is necessary to assess the persistence of the employment losses caused by the COVID-19 crisis.

In addition to the common patterns across many countries, the COVID-19 crisis in Korea has several interesting characteristics. First, there were three major COVID-19 outbreaks in 2020, all of which subsided within a short period. The repeated experiences of a short-lived outbreak and a subsequent lull provide an opportunity to better identify the persistence of employment losses caused by the COVID-19 crisis. Second, the actual number of confirmed cases remained relatively low without official lockdowns owing to the targeted testing and quarantine strategy based on contact tracing, but the impacts on the labor market were still significant. Social distancing measures combined with strong voluntary alertness effectively contained the spread of the coronavirus and human activities. Except for occasional clustered cases, most people just reduced social activities without actual infections around them, outcomes that were advantageous for distinguishing the economic effects of the health crisis from the effects of the infectious disease per se (e.g., sick leaves, absences for family care, and excess mortality).

This study evaluates the impact of the COVID-19 crisis on employment from monthly survey data in Korea. For the impact evaluation, counterfactual outcomes are constructed for each subdivided group based on simple assumptions. While there is more than one way to construct counterfactual outcomes, the evaluated impacts provide a reasonable reference point from which to evaluate the national-level shock. Subsequently, the employment shocks by the COVID-19 crisis are decomposed into their persistent and transitory components by utilizing the observed events of the three major outbreaks and the subsequent recovery periods as the source of identification.

Decomposing the employment losses due to COVID-19 yields the following findings at the aggregate level. First, while job losses underestimate the employment shocks caused by COVID-19, extra losses at the intensive margin (i.e., hours worked) were largely transitory. The transitory component is mostly related to a distinctive feature of the COVID-19 employment shocks, i.e., the unusual increase in temporary closures and leaves. Second, while face-to-face services were hit hard during this pandemic, the employment shock on the sector was less persistent compared to those on other sectors. Within the face-to-face service sector, the employment shocks on temporary and self-employed jobs were particularly less persistent at both margins of employment – even compared to similar jobs in other services. These results lead to a mixed conclusion about the persistence of the employment shock overall by COVID-19: while employment shocks by the COVID-19 were largely transitory, they were highly persistent in some dimensions, particularly regarding permanent jobs in the face-to-face service sector.

The analyses of individual heterogeneity show that the persistently affected workers in the face-to-face service sector are mostly young or older workers who are in transition into or out of their career jobs. Particularly, men in their 40s and 50s had persistent job losses in that sector, although these losses were masked by simultaneous increases in temporary jobs and self-employment in another sector. Combined with previous findings on the persistent effects of job losses, these workers are likely to remain as particularly vulnerable groups during the postpandemic recovery. While women in their 30s also experienced large and persistent job losses, their channel differed. In contrast, less-educated workers, who were among the hard-hit group during the initial shock, showed much less persistent job losses.

This study is closely related to the growing body of work on the labor market impact of the COVID-19 crisis. The initial studies focused on the nature of the COVID-19 crisis and its heterogeneous impacts during the initial phase. For example, high-income households reduced consumption and local service jobs disappeared (Chetty et al., 2020). Hourly jobs in low-wage services disappeared rapidly (Bartik et al., 2020), and small firms halted new hiring (Campello, Kankanhalli, and Muthukrishnan, 2020). The initial impacts were concentrated on older workers, women, youth, Hispanics, and less-educated workers compared to previous recessions (Bui, Button, and Picciotti, 2020; Montenovo et al., 2020) and on workers in low-work-from-home or high physical-proximity jobs who are likely less educated and earn lower incomes (Mongey, Pilossoph, and Weinberg, 2020). 

Later studies naturally focus on the reopening and (first) recovery process. After reopening, employment recovered to some extent but partially and selectively. Employment losses after reopening were still concentrated among lower wage workers (Cajner et al., 2020). Cheng et al. (2020) note that the employment recovery was largely due to workers who were recalled to a previous employer, and new employment matches slowly arose for hard-hit workers. Small firms rehired their previous workers but their employment remained low compared to the pre-pandemic level, particular for the service sector (Kurmann, Lalé, and Ta, 2020). Costa Dias et al. (2020) emphasizes active labor market policies for reallocating workers to sectors with better prospects during the recovery process.

This study evaluates the labor market impact of COVID-19 in Korea from the beginning of the crisis and provides additional evidence of the impact of COVID-19 on the Korean labor market using a different methodology from those in concurrent studies (e.g., Aum, Lee, and Shin, 2021b; Lee and Yang, 2021). In particular, this study systematically decomposes the employment losses due to COVID-19 into their persistent and transitory components using the repeated temporal variation observed in Korean data, providing useful information about the recovery process. While confirming previous findings, this study also presents new findings, such as the increases in persistent job losses in face-to-face services through the recurring crises and for those in persistently vulnerable groups, all of which are relevant for labor market policies during the recovery process. 

The rest of this paper is organized as follows: Section 2 describes the COVID-19 crisis in Korea, and Section 3 explains the data and the methodology. Section 4 discusses the decomposition of employment losses into persistent and transitory components, and Section 5 presents the estimation results. Section 6 provides concluding remarks.