AutorSánchez Gómez, Manuel Esteban



    Since the surge of the COVID-19 in 2020, policy makers around the world had to deal with the sanitary emergency and its impact in the economy. To contain the spread of the virus, lockdowns, mobility restrictions and social distancing measures were implemented, but these actions also generated a sudden contraction of the economic activity.

    The pandemic and the policies implemented also affected the labor markets. In that sense, the International Monetary Fund (IMF) described the effects of the lockdown as "catastrophic" and it points out that the most vulnerable are the low skilled workers, which in most of the cases are the ones that cannot readapt their jobs tasks to home working (International Monetary Fund, June 2020).

    The main purpose of this research is to determine how the labor market participants reacted in the context of the COVID-19 crisis. In specific, this paper focuses on estimating the effect in labor demand by firms and to determine its heterogeneous response on different industries, regions, and occupations.

    Moreover, this paper attempts to find some evidence on how the individuals searching in the labor market react to the crisis, by changing their search intensity, their participation in the market and their wage expectations from a match with a firm.

    It is possible to explain the effects of this event in the labor market through search and matching theory (Pissarides, 2000). The pandemic and the policies implemented, can be interpreted as a supply shock that increased the job destruction rate. As a result, the number of unemployed workers increased and the tightness in the labor market declined.

    From the firm's perspective, an increase in the job destruction rate caused a drop in the duration of worker's contracts and a reduction of the expected value of jobs, which leads firms to reduce the number of vacancies posted (i.e. their labor demand).

    Since unemployment has increased, the bargaining power of workers is reduced, and firms are able to hire new workers at lower wages. This fact could compensate the decline in labor demand partially.

    From worker's perspective, as tightness has declined, it is more difficult to find a job, since there are more competitors for any vacant. This might encourage them to decline their search intensity, suggesting a cyclical path of worker's search behavior (Elsby, Michaels, & Ratner, 2015).

    The outcome in the labor market is one where the unemployment level is higher than before the supply shock, the matching efficiency declined, wages paid to workers are reduced, and the net effect on vacancies remains ambiguous.

    In this context, the governments reacted by increasing the coverage and duration of the unemployment insurance for workers. Additionally, households affected by the recession has received monetary transfers to mitigate the effects of the income loss in their consumption. These policies might affect the worker's decisions regarding their job search intensity, participation in the labor market and firm's decision to post vacancies.

    Moreover, (Guerrieri, Lorenzoni, Straub, & Werning, 2021) suggest that if the supply shock occurs in an economy with incomplete markets, few substitutes for some goods and services produced by industries under lockdown and the presence of a significant proportion of individuals with cash constraints, it is feasible that the initial supply shock leads into a subsequent demand shock, deepening the loses in terms of output and employment.

    Firms and worker's response in labor market due to the pandemic is not a trivial question, but it is relevant. The understanding of the heterogeneity caused by this shock in the labor market allows to concentrate resources and develop policies more efficiently, to attend primarily those more affected by the crisis. In that sense, the estimation of the heterogeneous impact of labor demand among industries, occupations and regions are valuable assets for the decision making. Similarly, the findings on the response of job seekers will contribute to the develop of more appropriate policies to mitigate the negative effects of unemployment on the population.

    The analysis presented in this paper is for firms and workers in Costa Rica, using data from buscoempleocr, a job online webpage from the Government. The dataset contains information of vacancies posted by firms and job seekers who uses the webpage to search jobs. Following the methodology presented in (Hensvik, Le Barbanchon, & Rathelot, 2021). Differences in Differences estimations were computed to determine the effect of the pandemic and the policies implemented on the level of vacancies posted by firms before and after the lockdown, relative to the previous year.

    It is founded that the aggregate level of vacancies posted for the firms who uses the webpage buscoempleocr, compared before and after the lockdown relative to the previous year declined in 67.2%. The industries that presented the highest drop in vacancy posting, were Accommodation and Food Service Activities (-86.0%), Education (-82.6%) and Administrative and Support Service Activities (-80.5%). The estimated effects are consistent with empirical findings presented previously in (Betcherman, et al., 2020), (Forsythe, Kahn, Lange, & Wiczer, 2020) and (Hensvik, Le Barbanchon, & Rathelot, 2021).

    By types of occupations, the highest drops on vacancies for service and sales workers, and elementary occupations, a result that is consistent with the IMF in their Outlook Report (International Monetary Fund, 2020) and with empirical literature on how the pandemic affected low skilled workers (Borjas & Cassidy, 2020), (Yasenov, 2020) and (Hensvik, Le Barbanchon, & Rathelot, 2021).

    By regions, the estimates suggest that the provinces of Guanacaste and Limon are the ones who presented the highest decline in vacancy posting during the lockdown. Both provinces are characterized by their touristic industry due to the proximity to beaches and other natural landscapes. These results are consistent with the estimated effects by industry and occupations.

    The analysis of labor demand by regions is an additional contribution of this paper to the research of the Costa Rican labor market, since there are no previous studies about the composition of the labor demand by provinces, mainly due to lack of statistics.

    For workers, it was found a decline in the search intensity, measured by the average number of occupations that job seekers select as those they wish to work for. A possible explanation is that workers only focus their search for certain occupations that they might consider feasible to match. However, another plausible explanation is that they might be filtering those occupations that might have higher risk of contagion. Also, the number of job applicants in buscoempleocr increased significantly during the pandemic.

    This paper contributes to the literature of the effects of COVID-19 in labor markets, it is one of the still scarce papers that presents results for emerging economies, and the first with data of firms and workers in Costa Rica. Additionally, this paper contributes with a new dataset of job-vacancy posts, even though the dataset has some limitations, it's still useful to develop some inferences about the sample of firms and workers contained in it. A description of the dataset, their strengths and limitations are presented in Appendix A.

    The paper is ordered as follows: section 2 presents the literature review and empirical evidence of the effects of COVID-19 on the labor markets; section 3 shows the chronology of the pandemic in Costa Rica and the policies implemented to contain the virus; section 4 introduces the data used in the paper while section 5 details the methodological approach used to estimate the responses of firms and workers. Section 6 presents the results for the labor demand and the heterogeneous response by industry, occupations, provinces, and the effect on search behavior. Finally, section 7 presents some concluding remarks.


    The effects of the COVID-19 pandemic in the economies has been studied intensively since 2020. From a theoretical approach, (Guerrieri, Lorenzoni, Straub, & Werning, 2021) developed a model where a negative supply shock caused by the pandemic leads into an overreaction in aggregate demand, generating a greater contraction in output and employment, known as "Keynesian Supply Shock.

    Similarly, (Eichembauam, Trabandt, & Rebelo, 2020) developed an extension of the SIR epidemiological model and its implications in the economies. In their framework, epidemics generates large recession and it is recognized the existence of a tradeoff between economic damages and health damages.

    Regarding to empirical contributions, (Forsythe, Kahn, Lange, & Wiczer, 2020) found a general reduction in the level of vacancies due the pandemic in United States, with no particular differences between states or industries. Also, they found that UI claims growth more for those workers who were on occupations that cannot be done from home.

    (Bennedsen, Larsen, Schmutte, & Scur, 2020) documented the effect of the Government policies to contain the spread of COVID-19 on firms in Denmark. They found a median drop in revenue of 20%, and firms who faced drops in revenue were more likely to ask for aid packages from Government. They also found that the firms who received aid packages to support labor tend to lay off few workers in comparison to the control group.

    (Hensvik, Le Barbanchon, & Rathelot, 2021) used data of vacancy postings and add views in Sweden to analyze the effect to COVID-19 on labor demand by firms and job search intensit The authors estimated that the proportion of occupations that can be done from home in Costa Rica is 16% with (Saltiel, 2020) methodology, and 33% with (Dingel &amp...

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