Working Paper: CEPR ID: DP14757
Authors: Julien Sauvagnat; Jeannol Barrot; Basile Grassi
Abstract: Typical government responses to pandemics involve social distancing measures implemented to curb disease propagation. We evaluate the impact of state-mandated business closures in the context of the Covid-19 crisis in the US. Using state-level variations in the set of sectors defined as non-essential and forced to shut down, and geographic variations in industry composition, we estimate the effects of business closure decisions on firms' market value, and on infection and death rates. We find that a 10 percentage point increase in the share of restricted labor is associated with a drop by 3 percentage points in April 2020 employment, a 1.87% drop in firms' market value, and 0.15 and 0.011 percentage points lower Covid-19 infection and death rates, respectively. An extrapolation of these preliminary findings suggests that state-mandated business closures might have cost $700 billion and saved 36,000 lives so far.
Keywords: pandemic; business closures; nonessential businesses; COVID-19
JEL Codes: E32; I10; I18; H1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 10 percentage point increase in the share of restricted labor (J79) | 3 percentage point drop in employment (J68) |
| 10 percentage point increase in the share of restricted labor (J79) | 18.7% decline in firms' market value (G32) |
| 10 percentage point increase in the share of restricted labor (J79) | 0.15 percentage point decrease in COVID-19 infection rates (I14) |
| 10 percentage point increase in the share of restricted labor (J79) | 0.011 percentage point decrease in mortality rates (I14) |