The Returns to Skills During an Economic Crisis: Experimental Evidence from Uganda over the Pandemic

About this event

The Covid-19 pandemic represents one of the most significant labor market shocks to the world economy in recent times. We present evidence from a field experiment to understand whether and how skilled and unskilled workers were differentially impacted by the shock, in terms of their initial exposure and subsequent resilience to it. We study the issue in the context of a developing economy, Uganda. Our analysis leverages a panel of workers and firms, tracked from 2012 to 2022, including multiple high frequency surveys over the pandemic. In 2013, workers were randomly assigned to receive six months of sector-specific vocational training, in one of eight high productivity sectors. We document that over the course of the pandemic, employment and earnings margins respectively follow V-shaped and √-shaped dynamics, whereby complier treated (skilled) workers are more severely impacted by lockdowns, they recover more quickly between lockdowns, and remain resilient to the shock as the economy recovers from the pandemic. Cumulatively over the pandemic, skilled workers spend 62% more time than controls employed in one of our study sectors, and their total earnings are 19% higher, largely driven by earnings from wage/self-employment. We explore supply- and demand-side mechanisms through which the returns to skills are maintained through the crisis. These show that sectoral allocations of skilled workers drive their exposure to the shock, and although they are more likely to be laid off during the first lockdown as the SMEs they are employed in struggle to remain afloat, the certifiability of their skills enables them to recover by switching firms in the same sector during the crisis. We find more limited evidence that differences in saving accumulated pre-pandemic or search behaviors explain the returns to skills over the crisis. Our findings have implications for understanding the returns to skills in good economic times and times of crisis.