COVID-19 doesn’t need lockdowns to destroy jobs: the effect of local outbreaks in Korea

Abstract

Unlike most countries, Korea did not implement a lockdown in its battle against COVID-19, instead successfully relying on testing and contact tracing. Until the summer of 2020, only one region, Daegu-Gyeongbuk, had a significant number of infections, traced to a religious sect. This allows us to estimate the causal effect of the outbreak on the labor market using difference-in-differences. We find that a one per thousand increase in infections caused a 2 to 3 percent drop in local employment in the early spring. We also find that employment losses caused by local outbreaks in the absence of lockdowns were (i) mainly due to reduced hiring by small establishments, (ii) concentrated in the accommodation/food, education, real estate, and transportation industries, and (iii) worst for economically vulnerable workers who are less educated, young, in low-wage occupations, and on temporary contracts, even controlling for industry effects. These patterns are similar to what we observed in the US and UK: The unequal effects of COVID-19 were the same with or without lockdowns. Our findings are consistent with the lifting of lockdowns having led to only modest employment recoveries in the US and UK, absent larger drops in infection rates.