Do Localised Lockdowns Cause Labour Market Externalities?

The business restrictions introduced during the COVID-19 pandemic greatly affected the labour market. However, quantifying their costs is not trivial as local policies affect neighbouring areas through spillovers. Exploiting the U.S. local variation in restrictions and commuting, we estimate the causal direct and spillover impacts of lockdowns. Spillovers alone account for 10-15% of U.S. job losses. We corroborate these results with causal evidence for a consumption-based mechanism: shops whose consumers reside in neighbouring areas under lockdown experience larger employment losses, even if no local restriction is in place. Accounting for spillovers implies larger lockdowns' total effects, but smaller direct ones.