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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 an epidemic. People differ by age and skill, and choose occupations and whether to commute to work or work from home, to maximize their income and minimize their fear of infection. Occupations differ by wage, infection risk, and the productivity loss when working from home. By setting the model parameters to replicate the progression of COVID-19 in South Korea and the United Kingdom, we obtain three key results. First, government-imposed lock-downs may not present a clear trade-off between GDP and public health, as commonly believed, even though its immediate effect is to reduce GDP and infections by forcing people to work from home. A premature lifting of the lock-down raises GDP temporarily, but infections rise over the next months to a level at which many people choose to work from home, where they are less productive, driven by the fear of infection. A longer lock-down eventually mitigates the GDP loss as well as flattens the infection curve. Second, if the UK had adopted South Korean policies, its GDP loss and infections would have been substantially smaller both in the short and the long run. This is not because Korea implemented policies sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt the economy less than a blanket lock-down. Finally, low-skill workers and self-employed lose the most from the epidemic and also from the government policies. However, the policy of issuing ``visas'' to those who have antibodies will disproportionately benefit the low-skilled, by relieving them of the fear of infection and also by allowing them to get back to work.

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  • Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2020. "Inequality of Fear and Self-Quarantine: Is There a Trade-off between GDP and Public Health?," CEPR Discussion Papers 14679, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14679
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    1. Facundo Piguillem & Liyan Shi, 2020. "Optimal COVID-19 Quarantine and Testing Policies," EIEF Working Papers Series 2004, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2020.
    2. Fernando E. Alvarez & David Argente & Francesco Lippi, 2020. "A Simple Planning Problem for COVID-19 Lockdown," NBER Working Papers 26981, National Bureau of Economic Research, Inc.
    3. Chudik, Alexander & Pesaran, M Hashem & Rebucci, Alessandro, 2020. "Voluntary and Mandatory Social Distancing: Evidence on COVID-19 Exposure Rates from Chinese Provinces and Selected Countries," CEPR Discussion Papers 14646, C.E.P.R. Discussion Papers.
    4. 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.
    5. Dingel, Jonathan I. & Neiman, Brent, 2020. "How many jobs can be done at home?," Journal of Public Economics, Elsevier, vol. 189(C).
    6. Lee, Sang Yoon (Tim) & Shin, Yongseok, 2017. "Horizontal and Vertical Polarization: Task-Specific Technological Change in a Multi-Sector Economy," CEPR Discussion Papers 12524, C.E.P.R. Discussion Papers.
    7. Maryam Farboodi & Gregor Jarosch & Robert Shimer, 2020. "Internal and External Effects of Social Distancing in a Pandemic," NBER Working Papers 27059, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Timo Boppart & Karl Harmenberg & John Hassler & Per Krusell & Jonna Olsson, 2020. "Integrated epi-econ assessment," Edinburgh School of Economics Discussion Paper Series 297, Edinburgh School of Economics, University of Edinburgh.
    2. Constantin Bürgi & Nisan Gorgulu, 2020. "Social Distancing and the Economic Impact of Covid-19 in the United States," CESifo Working Paper Series 8577, CESifo.
    3. Sangmin Aum & Sang Yoon (Tim) Lee & Yongseok Shin, 2020. "COVID-19 Doesn't Need Lockdowns to Destroy Jobs: The Effect of Local Outbreaks in Korea," NBER Working Papers 27264, National Bureau of Economic Research, Inc.
    4. David Baqaee & Emmanuel Farhi & Michael J. Mina & James H. Stock, 2020. "Reopening Scenarios," NBER Working Papers 27244, National Bureau of Economic Research, Inc.
    5. Christopher Cotton & Bahman Kashi & Huw Lloyd-Ellis & Frederic Tremblay, 2020. "Quantifying the Economic Impacts of COVID-19 Policy Responses on Canada's Provinces in (Almost) Real Time," Working Paper 1441, Economics Department, Queen's University.
    6. MORIKAWA Masayuki, 2020. "Productivity of Working from Home during the COVID-19 Pandemic: Evidence from an Employee Survey," Discussion papers 20073, Research Institute of Economy, Trade and Industry (RIETI).
    7. Patrick Mellacher, 2020. "COVID-Town: An Integrated Economic-Epidemiological Agent-Based Model," Papers 2011.06289, arXiv.org.
    8. Frank Milne & David Longworth, 2020. "Covid-19 and the Lack of Public Health and Government Preparation," Working Paper 1436, Economics Department, Queen's University.
    9. David E. Bloom & Michael Kuhn & Klaus Prettner, 2020. "Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses," NBER Working Papers 27757, National Bureau of Economic Research, Inc.
    10. Ng, Wung Lik, 2020. "To lockdown? When to peak? Will there be an end? A macroeconomic analysis on COVID-19 epidemic in the United States," Journal of Macroeconomics, Elsevier, vol. 65(C).
    11. Sonja Settele & Cortnie Shupe, 2020. "Lives or Livelihoods? Perceived Tradeoffs and Public Demand for Non-Pharmaceutical Interventions," CEBI working paper series 20-17, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).

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    More about this item

    Keywords

    antibody test; COVID-19; economic inequality; occupations and sectors; Quarantine; SIR model;
    All these keywords.

    JEL classification:

    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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