Social distancing and supply disruptions in a pandemic

• Published in: Quantitative economics Vol. 13; no. 2; pp. 681 - 721
• Main Authors: Bodenstein, Martin, Corsetti, Giancarlo, Guerrieri, Luca
• Format: Journal Article
• Language: English
• Published: New Haven, CT The Econometric Society 01.05.2022; John Wiley & Sons, Inc; John Wiley and Sons Inc
• Subjects: Coronaviruses; COVID-19; Disease; Econometrics; Economic activity; Growth models; Infectious disease; Labor shortages; Labor supply; Mobility; Occupations; Original; pandemic; Pandemics; recession; Shelter in place; Social distancing; Task performance; Workers; United States > US; Infectious disease; COVID‐19; I1; E1; pandemic; E3; recession
• ISSN: 1759-7331; 1759-7323; 1759-7331
• DOI: 10.3982/QE1618

We integrate an epidemiological model, augmented with contact and mobility analyses, with a two-sector macroeconomic model, to assess the economic costs of labor supply disruptions in a pandemic. The model is designed to capture key characteristics of the U.S. input-output tables with a core sector that produces intermediate inputs not easily replaceable by the other sectors, possibly subject to minimum-scale requirements. Using epidemiological and mobility data to inform our exercises, we show that the reduction in labor services due to the observed social distancing (spontaneous and mandatory) could explain up to 6-8 percentage points of the roughly 12% U.S. GDP contraction in the second quarter of 2020. We show that public measures designed to protect workers in core industries and occupations with tasks that cannot be performed from home, can flatten the epidemiological curve at reduced economic costs-and contain vulnerabilities to supply disruptions, namely a new surge of infections. Using state-level data for the United States, we provide econometric evidence that spontaneous social distancing was no less costly than mandated social distancing.