For our first article of 2021, we are taking a serious look at the economics of Covid-19 and lockdowns, and what it might mean for our societies and therefore for us. With much of Europe in some form of lockdown, analysing the direct and indirect impacts are relevant for all of us.
When I hear or read from people arguing that the economic and social damage of Covid lockdowns is potentially more damaging than the disease itself, what is often striking is that little or no consideration is given to the economic and social damage of an unchecked pandemic. It seems that many opinions are based on the assumption that if everyone just goes back to work (unless they are sick or particularly vulnerable), it will be business as usual, so here’s an economic perspective of what ‘opening up and getting back to normal’ might look like if done too early.
Let’s start with the widely agreed projections: Unchecked, Covid 19 has an estimated R0 (reproduction/transmission rate) of somewhere between 1.4 and 4 and could infect at least 70% of the population. Of those, 20% would show symptoms and 5% would be critical and 1% may die. Considering that the disease is much more dangerous for those over 65, we can suggest that those of school/working age would be around 15% showing symptoms, 2% critical and 0.5% dying.
Studies have shown that mild symptoms can last for 2-8 weeks (median of 4), whilst those who are admitted to hospital require treatment or attention for on average 8 weeks (3 in hospital, 5 thereafter). In addition, an estimated 10% of symptomatic patients suffer from ‘long-covid’ for at least 3 months after initial symptoms subside. We are aware of the existence of the potentially more contagious UK and South African variants which could further complicate matters, but due to limited data on these so far, we will stick to the numbers that the CDC, EMA and WHO among others have published about the original SARS-Cov-2. There have been numerous reports of reinfection, but we couldn’t find enough data to include that as a variable so we will discount it.
By these numbers, the unchecked disease would permanently remove 0.35% of the workforce and cause 1.4% to become physically disabled potentially permanently but certainly for several months.
These people would be part of the 14% of the population who would be off work for 4-8 weeks during which time they would be non-contributing, non-consuming burdens to their family and the health system.
You might well say 14% of the population off work for 8 weeks is better than 100% of the population for several months, but that would be ignoring the small but important numbers that came first:
- 0.35% of workforce/consumers dead
- 1.4% disabled
These are individuals who would be permanently removed from the economy or would need to be supported by it.
Let’s dig a bit deeper. If the spread of the disease is unchecked, it is likely that hospitals will become overwhelmed due to numbers of patients and infections among health workers (as was observed, for example during the first wave in Northern Italy and New York, or in Sweden during the second wave). This will not affect the number of patients with mild or severe symptoms, but could drastically increase the death rate among all patients. Let’s conservatively estimate that the overall mortality would increase to 5%, or 2% for those of working age. This would represent a significant and permanent impact to economic production and consumption.
Furthermore, studies have shown that those in low-income households are significantly more likely to suffer severe symptoms or death than those in higher economic brackets. This has been attributed to dietary conditions, physical health or existing comorbidities and access to above-average healthcare. Studies in the USA have shown that, while the coronavirus has often spread faster in high-income areas, mortality rates in low-income communities have been up to 5 times higher. This presents a significant additional issue to any developed economy:
We have seen during the lockdowns in Western countries that low-income employees in what some might previously have termed ‘menial’ roles, are vital to the functioning of a modern consumer economy. ‘Essential workers’ such as checkout cashiers, postal workers, factory staff, delivery drivers, maintenance and sanitation staff and public transport employees are typical of the workers from low-income households that have demonstrated higher-than-average vulnerability to the novel coronavirus. The removal of these workers through death or incapacity has the potential to damage the economy far more than the direct contribution that they make through work output or personal/family consumption. Due to the in-person nature of their work, these members of the workforce are unable to work remotely and cannot be directly protected in all cases without widespread restrictions of movement. In short, though many of these low-income workers may be classified as economically dependent on the state, the state is most certainly economically dependent on these workers.
It is impossible to estimate the impact on the general psychological wellbeing of the population that may occur due to prolonged exposure to the possibility of contagion and an unchecked spread of the virus, though it may be considerable. Furthermore, it is impossible to estimate how this may compare to the obvious psychological issues that have arisen throughout various local and national lockdowns. It is fair, however, to suggest that medical professionals are among the worst affected psychologically during a pandemic and this can only exacerbate issues of mortality, survivability, and ongoing care over the long term. Furthermore, the economic damage from permanent removal of workers/consumers will take far longer to rebound than temporary impacts of lockdowns, leading to potential socio-economic depression over a prolonged period. Data from previous pandemics have also suggested reduced birth rates, less economic migration and lower entrepreneurship among surviving communities.
For investors, it’s not yet time to celebrate, but certainly not time to despair. Any crisis brings opportunities and threats and this one has been no different. You might find that your everyday spending has decreased so if you are fortunate enough to be able to work from home then you may have a little more disposable income than usual. This gives an opportunity to put that extra money to work towards your own goals, but please take time to think about others that might be struggling more than you. Investing in the community to support health systems, essential workers and those hit hardest by this pandemic will eventually help us all to overcome it sooner, and that brings significant economic benefits on top of the social ones.
In essence, whilst the economic impacts of quarantine and social restrictions are significant, they are likely to be temporary, unlike the economic impacts of significant increases in death, sickness and disability within the workforce and consumer base, which are potentially as significant (particularly if concentrated among essential workers) and certainly much longer lasting. This time may be difficult and lockdown is painful for us all, but we should stick with it and trust the numbers, because we believe the long-term cost is far less than the alternative.
Frontiers – Poverty and Covid-19 – June 2020
UMC – Ebola and psychological stress of health workers – May 2015
Elsevier (via Lancet) – Long Covid guidelines… – Dec 2020
The Scientist – Why R0 is problematic for Covid… – Aug 2020
JSTOR – Economic impact of AIDS – Feb 1988
EPI – On Essential Workers – May 2020
COMPAS (for OECD) – Jun 2020
EurWORK – Economically dependent workers – June 2002