COVID-19 and the Economy
Monday, Jan. 4, 2021 10:00 AM - 12:00 PM (EST)
- Chair: Yongseok Shin, Washington University in St. Louis
The Hammer and the Dance: Equilibrium and Optimal Policy during a Pandemic Crisis
AbstractWe develop a comprehensive framework for analyzing optimal economic policy during a pandemic crisis in a dynamic economic model that trades off pandemic-induced mortality costs against the adverse economic impact of policy interventions. We use the comparison between the planner problem and the dynamic decentralized equilibrium to highlight the margins of policy intervention and describe optimal policy actions. As our main conclusion, we provide a strong and novel economic justification for the current approach to dealing with the pandemic, which is different from the existing health policy rationales. This justification is based on a simple economic concept, the shadow price of infection risks, which succinctly captures the static and dynamic trade-offs and externalities between economic prosperity and mortality risk as the pandemic unfolds.
The Cost of Privacy: Welfare Effects of the Disclosure of COVID-19 Cases
AbstractSouth Korea publicly disclosed detailed location information of individuals that tested positive for COVID-19. We quantify the effect of public disclosure on the transmission of the virus and economic losses in Seoul. The change in commuting patterns due to public disclosure lowers the number of cases by 60 thousand and the number of deaths by 2 thousand in Seoul over two years. Compared to a city-wide lock-down that results in the same number of cases over two years as the disclosure scenario, the economic cost of such a lockdown is almost four times higher.
Inequality of Fear and Self-Quarantine: Is There a Trade-off between GDP and Public Health?
AbstractWe construct a quantitative model of an economy hit by an epidemic. People differ by age and
skill, and choose occupations and whether to commute to work or work from home, to maximize
their income and minimize their fear of infection. Occupations differ by wage, infection risk, and
the productivity loss when working from home. By setting the model parameters to replicate the
progression of COVID-19 in South Korea and the United Kingdom, we obtain three key results.
First, government-imposed lock-downs may not present a clear trade-off between GDP and
public health, as commonly believed, even though its immediate effect is to reduce GDP and
infections by forcing people to work from home. A premature lifting of the lock-down raises
GDP temporarily, but infections rise over the next months to a level at which many people choose
to work from home, where they are less productive, driven by the fear of infection. A longer lockdown eventually mitigates the GDP loss as well as flattens the infection curve. Second, if the UK
had adopted South Korean policies, its GDP loss and infections would have been substantially
smaller both in the short and the long run. This is not because Korea implemented policies
sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt
the economy less than a blanket lock-down. Finally, low-skill workers and self-employed lose the
most from the epidemic and also from the government policies. However, the policy of issuing
“visas” to those who have antibodies will disproportionately benefit the low-skilled, by relieving
them of the fear of infection and also by allowing them to get back to work.
Searching, Recalls, and Tightness: An Interim Report on the COVID Labor Market
AbstractWe measure tightness during the COVID recession, combining job seeker information from the CPS and vacancy postings from Burning Glass Technologies. To parse the former, we develop a taxonomy splitting job seekers from those waiting to be recalled. Tightness halved since the onset of the epidemic and, as shown in our model, should steer policy to increase employer profitability. Disaggregating markets, we find mismatch has declined, driven by a decline in professional occupations' tightness. Further, while markets are tight relative to other recessions, that would flip if the large group of job losers not currently searching reenter the market.
Which Workers Bear the Burden of Social Distancing Policy?
- A1 - General Economics
- E7 - Macro-Based Behavioral Economics