Working Paper: Worker heterogeneity, selection, and employment dynamics in the face of aggregate demand and pandemic shocks
Working Paper - November 2020 - No. 163
We model a COVID recession resulting from a negative demand shock and the need for social distancing, considering the US economy as an example. Low-productivity workers suffer a protracted surge in unemployment and inefficient separations from firms. Unemployment is amplified when nominal interest rates are close to the effective lower bound.