Social Distancing and Supply Disruptions in a Pandemic

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.

Epidemics in the New Keynesian Model

“…Equation (15) implies that the real rental rate of capital is independent of the markup. Since the marginal cost is a decreasing function of γ, equation (8) implies that the real wage rate also falls for higher values of γ.…”

Nonlinear Production Networks with an Application to the COVID-19 Crisis

“…Our approach differs from theirs since we focus on analytical characterizations and a different set of thought experiments. This paper is also related Bodenstein et al (2020), who analyze optimal shutdown policies in a two-sector model. Once again, our approach differs since we focus on positive rather than normative questions.…”

“…Other economics papers studying the effects of Covid-19 include Eichenbaum et al (2020a,b), Dingel and Neiman (2020), Mongey et al (2020), Berger et al (2020), Alvarez et al (2020), Atkeson (2020a,b), Bethune and Korinek (2020), Guerrieri et al (2020), Bigio et al (2020), Caballero and Simsek (2020), Faria-e Castro (2020), Gourinchas (2020), Jones et al (2020), Jorda et al (2020), Kaplan et al (2020), Krueger et al (2020), Jorda et al (2020), Bodenstein et al (2020), Barrot et al (2020), Barro et al (2020), Fernández-Villaverde and Jones (n.d.), Hall et al (2020), Glover et al (2020), Fornaro and Wolf (2020), Acemoglu et al (2020), Cakmakli et al (2020), andGourinchas et al (2020).…”

When can physical distancing be relaxed? A health production function approach for COVID-19 control policy

“…If social distancing is not applied, the economic costs can be much higher. A two-sector analysis of the US Input-Output Table shows that without social distancing, the falls in output, capacity utilization and investment is around two-folds of those with social distancing [9]. If social distancing goes wrong, the economy could experience another severe hit [9].…”

“…A two-sector analysis of the US Input-Output Table shows that without social distancing, the falls in output, capacity utilization and investment is around two-folds of those with social distancing [9]. If social distancing goes wrong, the economy could experience another severe hit [9]. If social distancing is "just slightly too relaxed", the net economic result would be worse than doing nothing [10].…”