A summary of:

COVID-19
Doesn`t need lockdown to destroy jobs:
The effect of local outbreak in Korea

Authors: Sangmin Aum, Sang Yoon (Tim) Lee, Yongseok Shin

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WORLD HEALTH ORGANIZATION – Country
After Action
COVID-19
ReviewIntra-Action Review (IAR) PAGE 1 (May-23)
SLIDE 1
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Contents
Summary

1- Introduction

2- Data

3- Empirical Model

4- Estimation Results

5- Concluding Remarks and limitation

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Summary

• Unlike most countries, Korea did not implement a lockdown in its battle against
COVID-19.
• Until the summer of 2020, only one region, Daegu-Gyeongbuk (DG), had significant
number of infections.
• Objective: To estimate the causal effect of the COVID-19 local outbreak on the labor
market using difference-in-differences (DiD).

• Finding: This research finds that:

1. One per thousand increase in infections caused a 2 to 3 percent drop in local employment in the early
spring (2020).
2. Employment losses caused by local outbreaks in the absence of lockdowns were
I. mainly due to reduced hiring by small establishments
II. concentrated in accommodation/food, education, real state, and transportation industries
III. worst for economically vulnerable workers who are less educated, young, in low wage occupations,
and on temporary contract.

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1- Introduction
The authors isolate the economic effect of COVID-19 that operates through the
fear of infection: The fact that the people voluntarily hunker down and curtail
economic activities in response to local outbreaks, even without government-
mandated lockdowns.

Thier estimate provides a unique reference point for the economic costs of the
epidemic itself.

Korea had only 30 confirmed infections prior to Feb 18, 2020, when “Patient 31”
attended a religious gathering of the “Shincheonji” sect in Daegu.

By Feb 28, 2020 the number of cases in Korea had exploded to 2337, with 1989
cases ( or 85.1%) in DG region. Of these, more than 60% were traced to
Shincheonji.

The DG region comprises 10% of South Korea`s total population of 52 million and 9% of national GDP. DG`s industry
and worker composition is also similar to the rest of the country.

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1- Introduction
Fig 1. Depict cumulative COVID-19 infections per thousands on Feb 28 and March 15 by region.

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2- Data

The study uses three data sets to analyze the impact of COVID-19 on the labor market in
Korea:
1) Labor Force Survey at Establishment (LFSE),
2) Economically Active Population Survey (EAPS),
3) The number of confirmed COVID-19 cases over time published by KCDC.
The authors present three sets of DiD estimates, using LFSE data as of Feb 28 and March 31,
and EAPS data as of March 15, all in 2020.

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3- Empirical Model
Economically, DG`s share of Korean GDP and employment has been stable for at least the last three years.

Fig.2 shows that the employment growth over time was also more or less similar between DG and other regions
through January 2020, both in levels and in linear trends.

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3- Empirical Model
The authors first focus on LFSE data as of February 28, 2020, nine days after the Shincheonji outbreak.
Given the exogenous regional variation in confirmed infections and the timing of the survey, they estimate the
causal effect of the outbreak on the labor market using the following DiD specification:

𝑦 𝑖 𝑟,𝑡 = 𝛽𝑖0 + 𝛽𝑖1 ⋅𝐷𝑟(DG) + 𝛽𝑖2 ⋅𝐷𝑡(Feb) + 𝛾𝑖 ⋅𝐷𝑟(DG) ⋅𝐷𝑡(Feb) + 𝜀𝑖𝑟,𝑡 …… (1)
Where:
𝑦 𝑖 𝑟,𝑡 = The variable of interest in industry 𝑖, region 𝑟 in month 𝑡. (change in employment)
𝐷𝑟( DG ) = Dummy variable that equals 1 if 𝑟 = DG and Zero otherwise
𝐷𝑡 ( Feb ) = equals 1 if 𝑡 is February 2020 or later months, and 0 otherwise.
𝛾𝑖 = primary coefficient of interest is the DiD term, designed to capture the effect on the DG
region, the lone hot spot in the spring of 2020.

Before After After– Before

Control 𝛃𝟎 𝛃𝟎 + 𝛃𝟐 𝛃𝟐
Treatment 𝛃𝟎 + 𝛃𝟏 𝛃𝟎 + 𝛃𝟏 + 𝛃𝟐 + 𝛾 𝛃𝟐 + 𝛾
Treatment – Control 𝛃𝟏 𝛃𝟏 + 𝛾 𝛾

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4- Estimation Results: Establishment-side employment data (LFSE)
Table 1 reports estimation results,
where the dependent variable is the
percentage change in monthly
employment.

Monthly: End of Jan – End of Feb

 The accommodations/food services
industry was hit hardest, not only
nationwide (−5.7%), but especially in
DG (−15.2%). They also happen to be
the lowest-paying industry.
 Employment in education
industries—which does not include
public school teachers—also saw a
large drop (2.4% nationwide and
5.7% in DG),
Bimonthly: End of Jan – End of March
• Employment fell by 2.1% nationwide
over two months (not annualized) and
by 3.3% in DG.
• Again, accommodation/food services
was hit hardest.

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4- Estimation Results:Household Survey Data (EAPS)

EAPS provides more worker-side

information. Again estimate Eq. 1, but now
𝑖 indexes a demographic group, and the
time dummy is 𝐷𝑡 (March).

Findings:
• Between February 15 and March 15,
employment fell by 0.6% nationwide
and by 3.2% (0.64 plus 2.53) in DG
(not annualized),
• Service, sales, and craft workers were
hit the hardest by the outbreak in DG,
while managers increased,
• Less educated workers lost more jobs,
• Direct causal effect was larger for men
(−2.8 vs. −2.2 percent),
• Younger workers (up to 29 year-olds)
lost more jobs, and
• Finally, temporary workers and unpaid
family workers lost more job.

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4- Estimation Results: Fear of COVID-19 vs. Lockdowns

Absence of Lockdown:
Korea
As of Feb 2020, a one per thousand increase in infections
1.02
causes a ( ) = 2.68% drop in employment
0.39−0.01

Large-scale Lockdown:
US
Cajner et al. (2020) – Between Feb 15 to April 18, 2020 one per thousand increase in infection is associated
with a 6.3% decline in employment.
Tedeschi and Bui (2020) – Between March 1 to April 18, 2020, one per thousand increase in infection is
associated with 5.4% decline in employment.
UK
Gardiner and Slaughter (2020) – Between May 6 to 11, 2020, one per thousand increase in infections is
associated with a 6% decline in employment.

With and without lockdown the pattern is the same.

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5- Concluding Remarks

 Authors estimate the causal effect of COVID-19 outbreaks on the labor market,
capturing only the voluntary response by private businesses and consumers
(without government-mandated lockdown).
 The main result is that, a one per thousand increase in confirmed infections
causes a 2.7% decline in employment is about half the magnitude of non-causal
estimates from the US or the UK, which confound the direct effects of COVID-19
with lockdown effects.

 Moreover, the causal patterns we obtain across industries, establishment size classes, and workers’ occupation,
education, age, and employment type tell us that the epidemic struck high-contact industries, small
establishments, and workers of lower socioeconomic status the hardest.
 The causal patterns are very much in line with descriptive evidence from the US and the UK. This suggests that the
primary culprit of the COVID-19 recession is COVID-19 itself, rather than lockdowns.

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6. Limitation

The following limitations can be raised for this research:

 Firstly, the study only analyzes the short-term impact of COVID-19 outbreaks on the labor
market, and it remains unclear whether the effects will persist in the long term.
 Secondly, the study is based on data from South Korea, and the findings may not be generalizable
to other countries or regions with different economic structures or policy responses to the
pandemic.
 Thirdly, the study relies on official COVID-19 case counts, which may be subject to measurement
error or underreporting.
Thank you for lending me your ears.