The largest economic cost of the COVID-19 pandemic could arise from changes in behavior long after the immediate health crisis is resolved. A potential source of such a long-lived change is scarring of beliefs, a persistent change in the perceived probability of an extreme, negative shock in the future. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long-run costs for the U.S. economy from this channel is many times higher than the estimates of the short-run losses in output. This suggests that, even if a vaccine cures everyone in a year, the COVID-19 crisis will leave its mark on the US economy for many years to come.
Veldkamp, L, V Venkateswaran and J Kozlowski (2020), ‘Scarring Body and Mind: The Long-Term Belief-Scarring effects of COVID-19‘, COVID Economics 8, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-8#392514_392884_390392
Motivated by reports in the media suggesting unequal access to Covid-19 testing across incomes, we analyze zip-code level data on the number of Covid-19 tests, test results, and income per capita in New York City. We find that the number of tests administered is evenly distributed across income levels. In particular, the test distribution across income levels is significantly more egalitarian than the distribution of income itself: The ten percent of the cityâ€™s population living in the richest zip codes received 11 percent of the Covid-19 tests and 29 percent of the cityâ€™s income. The ten percent of the cityâ€™s population living in the poorest zip codes received 10 percent of the tests but only 4 percent of the cityâ€™s income. At the same time, we find significant disparity in the fraction of tests that come back negative for the Covid-19 disease across income levels: moving from the poorest zip codes to the richest zip codes is associated with an increase in the fraction of negative Covid-19 test results from 38 to 65 percent.
Teoh, K, M Uribe and S Schmitt-Grohé (2020), ‘Covid-19: Testing Inequality in New York City‘, COVID Economics 8, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-8#392514_392884_391018
This paper argues for the regular testing of members of at-risk groups more likely to be exposed to SARS-CoV-2 as a strategy for reducing the spread of Covid-19 and enabling the resumption of economic activity. We call this â€˜stratified periodic testingâ€™. It is â€˜stratifiedâ€™ as it is based on at-risk groups, and â€˜periodicâ€™ as everyone in the group is tested at regular intervals. We argue that this is a better use of scarce testing resources than â€˜universal random testingâ€™, as recently proposed by Paul Romer. We find that universal testing would require checking over 21 percent of the population every day to reduce the effective reproduction number of the epidemic, Râ€™, down to 0.75 (as opposed to 7 percent as argued by Romer). We obtain this rate of testing using a corrected method for calculating the impact of an infectious person on others, where testing and isolation takes place, and where there is self-isolation of symptomatic cases. We also find that any delay between testing and the result being known significantly increases the effective reproduction number and that one dayâ€™s delay is equivalent to having a test that is 30 percent less accurate.
Wills, S, L Vines, D Susskind, D Vines and M Cleevely (2020), ‘A Workable Strategy for Covid-19 Testing: Stratified Periodic Testing rather than Universal Random Testing‘, COVID Economics 8, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-8#392514_392884_390393
We study how the share of employment that can work from home changes with country income levels. We document that in urban areas, this share is only about 20% in poor countries, compared to close to 40% in rich ones. This result is driven by the self-employed workers: in poor countries their share of employment is large and their occupational composition not conducive to work from home. At the level of the entire country, the share of employment that can work from home in poor countries compared to rich countries depends on farmers' ability to work from home. This finding is due to the high agricultural employment share in poor countries.
Grobovsek, J, M Poschke and C Gottlieb (2020), ‘Working From Home across Countries‘, COVID Economics 8, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-8#392514_392884_390394
This paper analyses the extent to which the Italian welfare system provides monetary compensation for those who lost their earnings due to the lockdown imposed by the government in order to contain the Covid-19 pandemic in March 2020. In assessing first-order effects of the businesses temporarily shut down and the governmentâ€™s policy measures on household income, counterfactual scenarios are simulated with EUROMOD, the EU-wide microsimulation model, integrated with information on the workers who the lockdown is more likely to affect. This paper provides timely evidence on the differing degrees of relative and absolute resilience of the household incomes of the individuals affected by the lockdown. These arise from the variations in the protection offered by the tax-benefit system, coupled with personal and household circumstances of the individuals at risk of income loss.
Fiorio, C and F Figari (2020), ‘Welfare resilience in the first month of COVID-19 pandemic in Italy‘, COVID Economics 8, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-8#392514_392884_390395
Policies that curtail social and economic activities during a pandemic are predominantly decided upon at the national level, but have international ramifications. In this paper we examine what type of inefficiencies this may create and how cooperation across countries may improve outcomes. We find that inefficiencies arise even among completely identical countries. We show that countries are likely to choose excessively lenient policies from the perspective of world welfare in later stages of the pandemic. This provides a rationale for setting minimum containment standards internationally. By contrast, in early and intermediate stages of the pandemic, national containment policies may also be excessively strict. Whether or not this is the case depends on a country's degree of economic integration relative to (outward and inward) mobility of people. Analyzing the stringency of containment policies during the current epidemic confirms that countries with higher economic integration adopt stringent containment policies more quickly whereas countries subject to high mobility do so later.
Wagner, W and T Beck (2020), ‘National containment policies and international cooperation‘, COVID Economics 8, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-8#392514_392884_391019