Econometrics Project

The effect of COVID-19 restrictions on unemployment in Colorado and Utah

Fall 2020

Overview

This project aims to determine whether or not the COVID-19 lockdown has affected the unemployment rate differently in urban & suburban areas across Colorado and Utah. I hypothesize that urban counties across the two states would have a higher unemployment rate than suburban counties, running similar OLS regressions between the two states. The results of these regressions assert the hypothesis; urban counties across Colorado had a 1.975% greater increase in unemployment compared to suburban counties. Similarly, urban counties across Utah showed a 2.204% greater increase in unemployment than suburban counties.

Introduction

This project analyzes the difference in the unemployment rates between urban and suburban counties in Colorado and Utah due to COVID-19 restrictions. This topic provides a fascinating area of research because the economic effects of the COVID-19 regulations only compound the difficulties associated with the pandemic. Namely, this project aims to answer the following research questions: “What is the difference in the COVID-19 unemployment between urban and suburban areas?” and “How do different approaches to COVID-19 restrictions affect labor markets?” Higher unemployment rates in urban counties would show that urban residents face more economic turmoil from the pandemic than those who live in suburban counties. I hypothesize that urban areas suffer more labor effects from the pandemic regulations than suburban counties because the proportion of residents working in the retail, food, and hospitality industries is higher in urban areas compared to suburban. Employees in these sectors are more likely to face unemployment due to in-person restrictions than white-collar employees. This research aims to uncover the differential unemployment effect of two COVID-19 strategies. Although Colorado governor Jared Polis employed a strict stay-at-home order, Utah governor Gary Herbert took a more lax approach with only a voluntary stay-at-home suggestion. Many political pundits and economists have debated the unemployment effects of stay-at-home orders. Many have argued that strict stay-at-home adversely affects labor markets more than voluntary COVID-19 recommendations.

The results of this project come from both OLS regression models and difference-in-differences models constructed to compare unemployment effects within the counties of interest. Focusing the research on metropolitan areas instead of rural areas accounts for exogenous effects such as differences in labor force composition. The regression models found that people in urban counties suffer from higher unemployment than those in suburban counties resulting from COVID-19 restrictions. This result is statistically significant and asserts the hypothesis that pandemic-related “stay-at-home” orders have a higher labor effect in urban counties than in suburban counties. Five sections compose the following project: literature review, empirical strategy, data, results, and discussion.

References: