The Costs of Zero-Covid: Effects of Anti-contagious Policy on Labor Market Outcomes in China

We investigate the effect of the anti-contagious policy on labor market outcomes in China. To measure the Zero-Covid Policy Interventions (ZPIs) implemented during 2020, we exploit the randomly emerged new cases of COVID-19 in a 14-day observation window and construct a conditionally exogenous measurement for cumulative duration of anti-contagious policy. Using a generalized difference-in-differences approach, we find that a 10% increase in the ZPIs heightened the probability of unemployment by around 0.1 percentage points. In contrast to most large economies that suffered a severe health shock from the COVID-19 pandemic, China effectively contained the scale and the spread of the initial outbreak in 2020 to the minimum level and avoided an overwhelmed and overloaded health system, which provides a unique empirical setting to examine the policy effect of anti-contagious policies. We show that the disruption in the labor market majorly results from the zero-Covid containment policy. Moreover, for employed individuals, the zero-Covid policy decreases working hours but not for the labor income, and the policy effect is heterogeneous by gender, age, education, and having a young child.