Local labor market effects of global value chain disruptions: Evidence from the COVID-19 crisis

This study investigates the importance of global value chain (GVC) integration for local labor market outcomes in Germany during the COVID-19 pandemic. Although COVID-19 can be considered as a global crisis, there are at the same time strong geographical differences in its impact. We observe pronounced spatial variation in infection rates, policy responses, and behavioral changes. A rapidly growing number of studies provide evidence of heterogeneous effects of the COVID-19 pandemic on local labor markets, most of them focusing on the initial shock and often on the effects of lockdowns and economic policy measures. This paper takes a different perspective on the regional economic effects of the pandemic. We focus on the impact of disrupted GVC during the COVID-19 crisis on local labor markets and investigate whether GVC integration influenced the magnitude of the initial shock and the subsequent recovery process of regions in Germany until December 2021. Our analysis of the regional effects of GVC disruptions in Germany focuses on the bilateral GVC relationship between China and Germany because the two countries are important agents in GVC. Moreover, China was hit early and severely by the pandemic which led to a sizeable decline in the country's production and exports at the beginning of 2020. [...]