The labour market policy response to COVID-19 must save aggregate matching capital
The COVID-19 pandemic represents an unprecedented shock to labour markets. This column argues that the policy response should balance two objectives: (1) facilitating prompt reallocation of employment to essential activities during the emergency, and (2) maintaining workers’ attachment to their previous employers, preserving the aggregate stock of firm-specific human capital, and avoiding persistent mismatch, which would propagate the temporary shock into a prolonged stagnation. The authors make concrete labour market policy proposals and compare them with measures currently being implemented on both sides of the Atlantic.
By Shigeru Fujita (Federal Reserve Bank of Philadelphia), Giuseppe Moscarini (Yale University), Fabien Postel-Vinay (University College London)