The worst thing for the economy could be not acting at all to prevent disease spread, followed by too short of a lockdown
New research from the University of Cambridge has suggested that there is no complete trade-off between the economy and human health, meaning that the economic costs of inaction two times as high as that of a “structured lockdown”.
A Cambridge economist has worked alongside researchers from the US Federal Reserve Board, and have combined macroeconomics with aspects of epidemiology, in order to create a model that shows the economic consequences of social distancing.
The study divides the population of people still working into “core workers”, who are those that are healthcare professionals, as well as those who work in food and transportation, sanitation and energy supply, among other essential fields, and then everyone else, such as people working from home; the study models the spread of the virus if no action is taken.
Co-author of the study, Professor Giancarlo Corsetti, from Cambridge’s Faculty of Economics has said:
“Without public health restrictions, the random spread of the disease will inevitably hit sectors and industries that are essential for the economy to run,”
“Labour shortfalls among core workers in particular strip more value from the economy. As essential team members within this core sector drop out of the workforce, it impairs production far more than losing those in other areas of the economy.”
From making a distinction between the core and non-core workers, the research paper suggests that the economy could potentially shrink by over 30% without further implementations of lockdown measures and social distancing.
“By ignoring this division in the workforce, we may badly underestimate the true depth of economic damage,” Corsetti said.
The researchers also modelled a scenario in which rates of infection of COVID-19 are kept to a level that is manageable for healthcare services of under 1.5% of the population for 18 months, which is the expected length of time it will take for a vaccine to be widely distributed. Under this set of modelling, the economy would shrink by 20%.
The study also looked into very strict lockdown measures that last for just three months. The study showed that this scenario simply delays the infection rates but prevents “herd immunity”, creating an economic drop comparable to the 30% shrink that is the result of taking no action in the first place.
“As well as containing the loss of life, committing to long-term social distancing structured to keep core workers active can significantly smooth the economic costs of the disease,” said Corsetti.
“The more we can target lockdown policies toward sections of the population who are not active in the labour market, or who work outside of the core sector, the greater the benefit to the economy,” he said.
“What seems clear to us is that taking no action is unacceptable from public health perspective, and extremely risky from an economic perspective.”
Previously, Breaking News Today have covered a story on scientists saying that lockdown measure in the UK and elsewhere, may need to be in place until the year 2022.
With Marc Lipsitch, a professor of epidemiology at Harvard and co-author of the study saying:
“Predicting the end of the pandemic in the summer [of 2020] is not consistent with what we know about the spread of infections.”
In the UK
In the UK, Chancellor Rishi Sunak announced a scheme to start next week, offering businesses loans up to £50,000, that should be put in place within days of applying, this scheme comes amid fears that many small firms could fold before getting loans.
The chancellor has previously come under pressure to underwrite all loans and not just those up to £50,000, but has said he did not want to add risk to the taxpayer due to the needs of small businesses.
“I’ve heard some calls for the government to underwrite all our loan schemes with 100% guarantees. I remain unconvinced by the case for doing that universally.”
The Office for Budget Responsibility have said that a three-month lockdown followed by three months of partial restrictions would trigger an economic decline of 35.1% in the quarter to June alone, following growth of 0.2% in the first three months of this year.