Working Paper: CEPR ID: DP14629
Authors: Giancarlo Corsetti; Martin Bodenstein; Luca Guerrieri
Abstract: Drastic public health measures such as social distancing or lockdowns can reduce the loss of human life by keeping the number of infected individuals from exceeding the capacity of the health care system but are often criticized because of the social and economic costs they entail. We question this view by combining an epidemiological model, calibrated to capture the spread of the COVID-19 virus, with a multisector model, designed to capture key characteristics of the U.S. Input Output Tables. Our two-sector model features a core sector that produces intermediate inputs not easily replaced by inputs from the other sector, subject to minimum-scale requirements. We show that, by affecting workers in this core sector, the high peak of an infection not mitigated by social distancing may cause very large upfront economic costs in terms of output, consumption and investment. Social distancing measures can reduce these costs, especially if skewed towards non-core industries and occupations with tasks that can be performed from home, helping to smooth the surge in infections among workers in the core sector.
Keywords: Infectious Disease; Epidemic; Recession; COVID-19
JEL Codes: E1; E3; I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social distancing measures (I14) | mitigate economic costs associated with a pandemic (H12) |
| high peak of infection (I12) | substantial upfront economic costs (G31) |
| unchecked disease spread (I12) | amplify economic recession (E32) |
| effective social distancing (I14) | smooth out trough in economic activity (E32) |
| targeted social distancing (R23) | maintain lower share of infected workers in core sector (J68) |
| extended lockdowns (E66) | reduce infection peaks (C22) |
| extended lockdowns (E66) | delay herd immunity and economic recovery (E65) |
| balance public health measures (I14) | avoid severe disruptions in essential production activities (D20) |