How did COVID‐19 lockdowns affect firms and workers? Evidence from Jordan and Morocco

Abstract

AbstractMotivationThe COVID‐19 pandemic harmed business and employment in two ways: ill health reduced consumer demand for goods and services; and lockdowns to control disease prevented businesses from operating. This article is concerned with the latter effect.PurposeThis article assesses the losses of full‐time and part‐time jobs as well as wage cuts in Jordan and Morocco as a result of businesses having to close down under lockdowns.Methods and approachWe compared firms that closed down under lockdown to those that did not in the two countries. We used propensity score matching to balance the two sets of firms.We drew on data from two rounds of the COVID‐19 World Bank Enterprise Survey, carried out in June–August 2020 for both countries; and November–December 2020 for Jordan and January–February 2021 for Morocco. The surveys included 601 firms in Jordan and 1,096 in Morocco. We used results from the first round to estimate short‐term effects, and those from the second round to estimate medium‐term effects.The survey differentiated firms by sector—manufacturing, retailing, and other services—by firm size, by whether they were under foreign ownership, and by whether they were engaged in exporting.FindingsFirst we checked the likelihood that firms closed: larger firms and non‐exporting firms were significantly less likely than smaller and exporting firms to close down.When firms closed, they shed jobs, but with marked differences across sectors.Manufacturing firms laid workers off in the short term, an effect that did not increase in the medium term. However, manufacturing firms did reduce wages in the medium term.Retail firms shed fewer jobs in the short term but cut more jobs in the medium term—mainly of part‐time workers. They also cut wages in the medium term.For other services, job losses were observed for part‐time workers in both the short term and the medium term.Policy implicationsPolicy‐makers should consider promoting digitization of the economy; programmes to reform and repurpose businesses; and targeted unemployment benefits to protect workers from loss of jobs and earnings from lockdowns.