Geographic spread of COVID-19 and local economies: Heterogeneous effects by establishment size and industry

Abstract

Using province-level establishments and employment data from the Korean Employment Insurance Database, this paper investigates how the regional spread of COVID-19 affects local businesses and unemployment by establishment size and industry. We find that the number of small establishments declines substantially after the COVID-19 pandemic through a decrease in new establishment creation and a surge in establishment closures. By contrast, large establishments are not affected significantly. Examining the numbers of unemployment benefits (UB) applicants, an indicator of unemployment, we find that the higher the rate of COVID-19 confirmed cases in a province, the higher the number of UB applicants, regardless of their previous workplace size. Our analysis of employment insurance subscribers further confirms that the regional spread of COVID-19 leads to a significant reduction in employment and job mobility in small establishments. Regarding industry heterogeneity in the COVID-19 effects, we find that local COVID-19 outbreaks affect local industries more through the reduction in establishment creation and new employment than through an increase in establishment closures. Industries that require face-to-face operations, such as lodging & restaurant, experience a substantial adverse impact in the early phase, and the impact also tends to last longer as COVID-19 situations prolong.