The (little) Reallocation Potential of Workers Most Hit by the Covid-19 Crisis

The accommodation and food services and entertainment and sport activities are the worst hit by the economic crisis that followed the COVID-19 pandemic. The possibility for these workers to find new jobs might be limited due to low competence and skill levels. We study the employment transitions of these workers before the COVID-19 crisis in Italy and find that, in the medium run, workers employed in accommodation and food service activities were as likely to be employed as those in other non-financial private services were. Entertainment sector employees instead had a higher probability of being non-employed compared with other non-financial private services; if they found a job, these workers moved more frequently to other sectors and occupations. To get insights into the potential for reallocation during the pandemic and post-pandemic periods, we perform a simple counterfactual exercise based on the similarity in skill demand: the evidence indicates there is little reallocation potential for these hard-hit workers, especially if service demand remains depressed for a long time.