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Inequality of fear and self-quarantine: Is there a trade-off between GDP and public health?

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  • Aum, Sangmin
  • Lee, Sang Yoon (Tim)
  • Shin, Yongseok

Abstract

We construct a quantitative model of an economy hit by a pandemic. People choose occupations and make work-from-home decisions to maximize income and minimize their fear of infection. Occupations differ by wage, infection risk, and the productivity loss when working from home. The model is calibrated to South Korea (SK) and the United Kingdom (UK) to compare SK’s intensive testing and quarantine policy against UK’s lockdown. We find that SK’s policies would have worked equally well in the UK, dramatically reducing both deaths and GDP losses. The key contrast between UK’s lockdown and SK’s policies was not in the intensity of testing, but weak restrictions on the activity of many (UK) versus strict restrictions on a targeted few (SK). Lockdowns themselves may not present a clear trade-off between GDP and public health either. A premature lifting of the lockdown raises GDP temporarily, but infections rise over time and people voluntarily choose to work from home for fear of infection, generating a W-shaped recession. Finally, we find that low-skill workers and self-employed always lose the most from both the pandemic itself and containment policies.

Suggested Citation

  • Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2021. "Inequality of fear and self-quarantine: Is there a trade-off between GDP and public health?," Journal of Public Economics, Elsevier, vol. 194(C).
  • Handle: RePEc:eee:pubeco:v:194:y:2021:i:c:s0047272720302188
    DOI: 10.1016/j.jpubeco.2020.104354
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    References listed on IDEAS

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    1. Adam Sheridan & Asger Lau Andersen & Emil Toft Hansen & Niels Johannesen, 2020. "Social distancing laws cause only small losses of economic activity during the COVID-19 pandemic in Scandinavia," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 117(34), pages 20468-20473, August.
    2. Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2021. "Inequality of fear and self-quarantine: Is there a trade-off between GDP and public health?," Journal of Public Economics, Elsevier, vol. 194(C).
    3. Facundo Piguillem & Liyan Shi, 2022. "Optimal Covid-19 Quarantine and Testing Policies [‘Optimal targeted lockdowns in a multigroup sir model’]," The Economic Journal, Royal Economic Society, vol. 132(647), pages 2534-2562.
    4. Fernando Alvarez & David Argente, 2020. "A Simple Planning Problem for COVID-19 Lockdown," Working Papers 2020-34, Becker Friedman Institute for Research In Economics.
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    6. Alexander Chudik & M. Hashem Pesaran & Alessandro Rebucci, 2020. "Voluntary and Mandatory Social Distancing: Evidence on COVID-19 Exposure Rates from Chinese Provinces and Selected Countries," Globalization Institute Working Papers 382, Federal Reserve Bank of Dallas.
    7. Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2021. "COVID-19 doesn’t need lockdowns to destroy jobs: The effect of local outbreaks in Korea," Labour Economics, Elsevier, vol. 70(C).
    8. Dirk Kruger & Harald Uhlig & Taojun Xie, 2020. "Macroeconomic Dynamics and Reallocation in an Epidemic," Working Papers 2020-43, Becker Friedman Institute for Research In Economics.
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    10. Garriga, Carlos & Manuelli, Rody & Sanghi, Siddhartha, 2022. "Optimal management of an epidemic: Lockdown, vaccine and value of life," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    11. Krueger, Dirk & Uhlig, Harald & Xie, Taojun, 2020. "Macroeconomic Dynamics and Reallocation in an Epidemic: Evaluating the "Swedish Solution''," CEPR Discussion Papers 14607, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    COVID-19; SIR model; Testing; Quarantine; Economic inequality;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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