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

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.