We examine the dynamics of GDP following an economy-wide pandemic shock that curtails physical mobility and the ability to perform certain tasks at work. We examine whether greater reliance on digital technologies has the potential to mediate employment and productivity losses. We employ industry-level indices of task-based digital intensity and ability to work from home (“home-shorability”), in conjunction with publicly available data on employment and GDP for Canada, and document that: (i) employment responses after the onset of the shock are milder in digitally-intensive sectors; (ii) conditional on the size of employment changes, GDP responses are less extreme in IT-intensive sectors. We suggest a simple state-dependent algorithm for predicting output dynamics as a function of employment across industries and locations with different digital intensity. In our baseline scenario, aggregate output returns to pre-crisis levels eight quarters after the initial shock onset, although we find significant heterogeneity in recovery patterns across sectors.
First version, July 25, 2020
E32: Business Fluctuations; Cycles
E66: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook, General Outlook and Conditions
J21: Labor Force and Employment, Size, and Structure
J23: Labor Demand