Twin Peaks: Covid-19 and the Labor Market

The Covid-19 epidemic has posed significant challenges to public health. Since the virus outbreak, governments have implemented confinement measures aimed at reducing the spread of the virus. Nevertheless, these measures have potentially huge economic and social costs. Understanding costs and benefits of alternative confinement policies and supporting labour market policies is of first order. To this purpose, we build a quantitative framework that merges a search and matching model of the labour market to a standard SIR epidemiological model of contagion. Standard epidemiological frameworks abstract from modelling individual behaviour in the labor market, while standard models of labor market are not able to capture the effect of the current epidemic shock, and its heterogeneity in the population. This is the first project to fill this knowledge gap. We calibrate the model to UK data and we use it as a laboratory to evaluate welfare and distributional consequences of government policies.