Impact of COVID-19 on Labour supply and demand and consumer behavior

Amongst many issues, Covid-19 brought about a reduction in consumption of a number of goods and services (restaurants, movie theaters, airlines, tourism,…). In fact, a remarkable feature of Covid-19 was the significant increase in personal savings in the US economy (and several other economies around the world). The spike in the personal savings rate is dominated by the large government transfers to households through the CARES and subsequent programs, though the increase in savings goes beyond those transfers as can be seen in the graph labeled 1 in the attachment named graphs.

Another feature of Covid is the remarkable movement in labor force participation, as described in the graph 2 – see attached

A final feature of Covid has been the remarkable increase in New Business Applications and reduction in the number of bankruptcies that, typically, have led to increases in business creation. In the past, new entrants have led to faster productivity gains. see graph 3

  1. a) Use the consumption/savings to explain this consumer behavior. Make sure to include in your comments the evolution of real disposable personal income, precautionary savings and hand-to-mouth households. **you must create graphs for explanation for personal income, hand-to-mouth and tie the explanation to the graphs. You may use Euler equation to explain precautionary savings See sample models in the attached document and use it as a reference point to create graph
  2. b) Using the labor market models, analyze the consequences on labor supply and demand that might have operated during Covid and its legacy going forward. **you must include graphs for explanation and tie the explanation to the graphs. See sample models in the attached document and use it as a reference point to create graph