THE POTENTIAL SCARRING EFFECT OF COVID19 ON PRODUCTIVITY AND LABOR MARKET: THE CASE OF INDONESIA

Masagus M Ridhwan, Jahen Rezki, Arief Ramayandi, Aryo Sasongko () and Dinda T. Andariesta
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Aryo Sasongko: Bank Indonesia
Dinda T. Andariesta: Bank Indonesia

No WP/09/2022, Working Papers from Bank Indonesia

Abstract: This study investigates the potential scarring effect of the pandemic on productivity and the labor market in Indonesia by combining both macro and micro analysis. Using the macro data of the Indonesian economy, we attempt to estimate the potential scarring effect of the COVID-19 pandemic and compare it to the previous two crises, notably the Asian Financial Crisis (AFC) in 1997 and Global Financial Crisis (GFC) in 2008. Our findings indicate that after 40 quarters, permanent supply shocks would increase price and unemployment, whereas output per worker, investment, and output decrease. For the micro analysis, we employ a machine learning approach to empirically test the impact of the pandemic on the labor market, and the result suggests that all crises have negatively correlated with earnings and working hours (except GFC). However, we did not find significant evidence of a historical hysteresis due to the pandemic in Indonesia, and the long-run output fluctuations are mostly driven by supply shocks. We also observe that there are heterogenous impacts of this crisis based on different groups. These findings have important information for policymakers to reduce the potentially long-lasting effects of the pandemic in the future.

Keywords: Scarring; Labor Market; COVID-19; Indonesia; Output (search for similar items in EconPapers)
JEL-codes: E32 E62 N10 O47 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2022
New Economics Papers: this item is included in nep-eff and nep-sea
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