Causal Effects of Closing Businesses in a Pandemic
TL;DR: In this article, the causal effect of state-mandated business closures on economic and health outcomes in the context of the COVID-19 crisis in the US is estimated, showing that business closures lead to a substantial drop in sales, earnings, and market values for affected firms.
Abstract: We estimate the causal effect of state-mandated business closures on economic and health outcomes in the context of the COVID-19 crisis in the US. We first show that business closures lead to a substantial drop in sales, earnings, and market values for affected firms. We then exploit sectoral variations in exposure to these restrictions across areas within the same state, and show that locking down 10% of the labor force is associated with a significant contraction in employment, but allows to reduce COVID-19 weekly infection and death rates by respectively 0.023 and 0.0015 percentage points. The findings translate into 24,000 saved lives for a cost of $115 billion. Finally, our empirical analysis suggests that the cost per life saved associated to business closures could have been significantly reduced if restrictions had targeted areas with intense workplace interactions
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TL;DR: The authors study how the differential timing of local lockdowns due to COVID-19 causally affects households' spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents.
Abstract: We study how the differential timing of local lockdowns due to COVID-19 causally affects households’ spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the corona virus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points with the largest drops in travel and clothing. We find that households living in counties that went into lockdown earlier expect the unemployment rate over the next twelve months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings. The imposition of lockdowns can account for much of the decline in employment in recent months as well as declines in consumer spending. While lockdowns have pronounced effects on local economic conditions and households’ expectations, they have little impact on approval ratings of Congress, the Fed, or the Treasury but lead to declines in the approval of the President.
243 citations
Posted Content•
01 Jan 2020
TL;DR: In this paper, the authors used American Time Use Survey data to measure the share of the work hours that are spent at home for different job cat- egories and provided home-working shares by occupation (US census classification, SOC and international ISCO classification).
Abstract: Which jobs are more likely to be affected by mobility restrictions due to the Covid-19 pandemic? This paper uses American Time Use Survey data to measure the share of the work hours that are spent at home for different job cat- egories. We compute and provide home-working shares by occupation (US census classification, SOC and international ISCO classification), and by industry (US census classification, NAICS and international ISIC classification).
38 citations
Posted Content•
TL;DR: The authors found that stricter lockdown policies, both in-country and globally, drove larger declines in national stock prices conditional on pandemic severity, workplace mobility, and income support and debt relief policies.
Abstract: Stock prices and workplace mobility trace out striking clockwise paths in daily data from mid-February to late May 2020. Global stock prices fell 30 percent from 17 February to 12 March, before mobility declined. Over the next 11 days, stocks fell another 10 percentage points as mobility dropped 40 percent. From 23 March to 9 April, stocks recovered half their losses and mobility fell further. From 9 April to late May, both stocks and mobility rose modestly. This dynamic plays out across the 35 countries in our sample, with a few notable exceptions. We also find that stricter lockdown policies, both in-country and globally, drove larger declines in national stock prices conditional on pandemic severity, workplace mobility, and income support and debt relief policies. Looking more closely at the two largest economies, the pandemic had greater effects on stock market levels and volatilities in the U.S. than in China. Narrative evidence confirms the dominant – and historically unprecedented – role of pandemic-related developments for stock prices in both countries. The size of the global stock market crash in reaction to the pandemic is many times larger than a standard asset-pricing model implies.
16 citations
TL;DR: In this paper, the effectiveness of business shutdowns to contain the Covid-19 disease was investigated using a difference-in-differences approach, and it was found that municipalities with higher exposure to closed sectors experienced subsequently lower mortality rates.
Abstract: We investigate the effectiveness of business shutdowns to contain the Covid-19 disease. In March 2020, Italy shut down operations in selected sectors of its economy. Using a difference-in-differences approach, we find that municipalities with higher exposure to closed sectors experienced subsequently lower mortality rates. The implied life savings exceed 9,400 people over a period of less than a month. We also find that business closures exhibited rapidly diminishing returns and had large effects outside the closed businesses themselves, including spillovers to other municipalities. Overall, the results suggest business shutdowns are effective, but should be selectively implemented and centrally coordinated.
9 citations
08 May 2021
TL;DR: In this article, the authors assess whether it is optimal for the United States to follow the lead of many European countries and introduce a nation-wide lockdown, and find that a lockdown would be indeed optimal and, depending on the assumptions, it should last between two and four weeks and will generate a net benefit of up to $653 billion.
Abstract: Though COVID vaccines have been available since December 2020, the rate at which they are administered remains slow, and in the meantime the pandemic continues to claim about as many lives every day as the 9/11 tragedy. I estimate that with the promised rate of vaccinations, if no additional non-pharmaceutical interventions are implemented, 203 thousand additional lives will be lost and the future cost of the pandemic will reach $1.3 trillion, or 6% of GDP. Using a cost-benefit analysis, I assess whether it is optimal for the United States to follow the lead of many European countries and introduce a nation-wide lockdown. I find that a lockdown would be indeed optimal and, depending on the assumptions, it should last between two and four weeks and will generate a net benefit of up to $653 billion.
7 citations
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TL;DR: In this article, the authors extend the canonical epidemiology model to study the interaction between economic decisions and epidemics, and they show that people's decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths.
Abstract: We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the U.S.
715 citations
TL;DR: In this article, a simple SIR model of the progression of COVID-19 in the United States over the next 12-18 months is introduced, which allows quantitative statements regarding the tradeoff between the severity and timing of suppression of the disease through social distancing and the progression in the population.
Abstract: This note is intended to introduce economists to a simple SIR model of the progression of COVID-19 in the United States over the next 12-18 months. An SIR model is a Markov model of the spread of an epidemic in a population in which the total population is divided into categories of being susceptible to the disease (S), actively infected with the disease (I), and recovered (or dead) and no longer contagious (R). How an epidemic plays out over time is determined by the transition rates between these three states. This model allows for quantitative statements regarding the tradeoff between the severity and timing of suppression of the disease through social distancing and the progression of the disease in the population. Example applications of the model are provided. Special attention is given to the question of if and when the fraction of active infections in the population exceeds 1% (at which point the health system is forecast to be severely challenged) and 10% (which may result in severe staffing shortages for key financial and economic infrastructure) as well as the cumulative burden of the disease over an 18 month horizon.
590 citations
TL;DR: The authors showed that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills, and also showed that flu-related deaths increased economic contraction.
Abstract: Mortality and economic contraction during the 1918-1920 Great Influenza Pandemic provide plausible upper bounds for outcomes under the coronavirus (COVID-19). Data for 48 countries imply flu-related deaths in 1918-1920 of 40 million, 2.1 percent of world population, implying 150 million deaths when applied to current population. Regressions with annual information on flu deaths 1918-1920 and war deaths during WWI imply flu-generated economic declines for GDP and consumption in the typical country of 6 and 8 percent, respectively. There is also some evidence that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills.
553 citations
TL;DR: The optimal lockdown policy for a planner who wants to control the fatalities of a pandemic while minimizing the output costs of the lockdown is studied using the SIR epidemiology model and a linear economy to formalize the planner's dynamic control problem.
Abstract: We study the optimal lockdown policy for a planner who wants to control the fatalities of a pandemic while minimizing the output costs of the lockdown. We use the SIR epidemiology model and a linear economy to formalize the planner's dynamic control problem. The optimal policy depends on the fraction of infected and susceptible in the population. We parametrize the model using data on the COVID19 pandemic and the economic breadth of the lockdown. The quantitative analysis identifies the features that shape the intensity and duration of the optimal lockdown policy. Our baseline parametrization is conditional on a 1% of infected agents at the outbreak, no cure for the disease, and the possibility of testing. The optimal policy prescribes a severe lockdown beginning two weeks after the outbreak, covers 60% of the population after a month, and is gradually withdrawn covering 20% of the population after 3 months. The intensity of the lockdown depends on the gradient of the fatality rate as a function of the infected, and on the assumed value of a statistical life. The absence of testing increases the economic costs of the lockdown, and shortens the duration of the optimal lockdown which ends more abruptly. Welfare under the optimal policy with testing is higher, equivalent to a one-time payment of 2% of GDP.
440 citations
TL;DR: In addition to its impact on public health, COVID-19 has had a major impact on the economy as mentioned in this paper, and the authors shed light on how COVID19 is affecting small businesses.
Abstract: In addition to its impact on public health, COVID-19 has had a major impact on the economy To shed light on how COVID-19 is affecting small businesses – and on
393 citations