Labor market tightness in pandemic times: a diagnosis for the Belgian labor market

Details

Supervisors

Dejemeppe, Muriel

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité approfondie

Abstract

I study the evolution of labor market tightness in Belgium during the first year of the COVID-19 crisis. As the descriptive evidence for this period shows that tightness levels decreased mainly due to the unemployment component, I study a broader measure of labor market under-utilization, the Aggregate Hours Gap. Such a measure allows me to examine whether the resulting level of under-utilization is the same as what the unemployment rate would predict on the evolution of tightness. This analysis is relevant insofar as the labor market was subject to far-reaching changes during the pandemic. Its main indicators diverged from their expected path and government measures were implemented to restrict the impact of the lockdown on the economy as a whole. In this respect, the Aggregate Hours Gap is well suited to analyze what drove labor market under-utilization during this period. It identifies changes along both the extensive and intensive margins of hours using individuals' desired hours as a measure of potential labor supply and actual hours as a result of both labor supply and demand. I use the Labor Force Survey data provided by Statbel to compute the Aggregate Hours Gap for Belgium in 2017-2020. My findings report that, along with a decrease in the extensive margin of labor supply, the Aggregate Hours Gap increased for the most part due to the intensive margin of labor demand. More precisely, the peak of this measure, in the second quarter of 2020, is due to a decline of the labor force participation rate (the extensive margin) but the main driver is the drop of actual work hours of employed individuals (the intensive margin). Resort to short-time work schemes contributed to this drop.