The Effects and Counter-Effects of Unemployment and Stringency Responses to COVID-19: An International Analysis Using Simultaneous Equations Models

Abstract

ABSTRACT By applying the data from 59 countries to simultaneous equations models with 3SLS and GMM estimations, we analyse the effects and counter-effects of stringency of movement restrictions on unemployment rate and COVID-19 infection cases. On the one hand, our results show that the unemployment rate rises when the governments impose more stringent movement restrictions. On the other hand, a higher unemployment rate leads the government to lower stringency of movement restrictions. Our findings provide evidence on the tradeoff between unemployment rates and infection cases under the government’s virus containment intervention policies. This allows the policymakers to find a balance between public health emergencies and the economy. We also find that the stringency is affected positively by infection cases, negatively by the number of hospital beds per capita and healthcare spending per capita; the number of infection cases is affected positively by urban population density and negatively by an individualism index; and the unemployment rate is affected negatively by GDP.