DELVE – a multi-disciplinary group convened by the Royal Society – today publishes a report on how economic analysis can be used in the fight against COVID-19 crisis. Professor Lord Nick Stern, a member of the DELVE steering group and Professor Tim Besley, a member of DELVE’s working group – both Fellows of the British Academy – convened a team of economists from leading universities to write the report. By combining economic and epidemiological data to model scenarios, the authors found that targeted economic interventions could stave off both a second peak and the looming prospect of a double-dip recession. However, they caution against using simple cost-benefit analysis to evaluate the trade-offs, and emphasise the importance of paying attention to the way in which the impacts of different strategies are distributed across regions, sectors, age groups, and other dimensions.
Crucially, the authors underline the importance of uncertainty and fear of infection as major drivers of reduced spending, alongside the lockdown itself, thereby suggesting that consumer confidence will only return when people’s perceptions of public safety improve. Given that the virus may become endemic and recur in spikes, it is likely to take some time to dispel this anxiety even if drugs or vaccines become available, as evidenced by the slow return to work in many places where the lockdown has been lifted.
The report therefore proposes a cautious and prolonged reopening strategy over an abrupt end to lockdown measures to allow the economy to restructure around physical distancing requirements – a likely feature of the “new normal”. The authors recommend targeted, sector-specific interventions, which include the following:
- Workplace rotation schemes: Rotations or split shifts can have an exponential impact on infection rates; having just two cohorts or rotations within a workplace could see secondary infections reduced to an eighth of the size of an outbreak where no interventions are in place.
- Workplace testing: Workplace testing should be incentivized to control workplace outbreaks quickly, particularly in key sectors and those occupations in which ‘high-contact’ is a feature.
- Sick pay: Policy instruments such as statutory sick pay alter the trade-offs that individuals face and affect their decision-making. Current sick pay arrangements create a financial disincentive to self-isolate, thereby forcing many workers to continue working with mild coronavirus symptoms that in turn makes it more difficult to control the transmission of virus.
- Reopening schools: Schools must prepare for any future resurgence of the epidemic with rotation schemes and better online provision for teaching and examinations. Careful consideration also needs to be given to the timing of the removal of the furlough scheme and the reopening of schools to prevent a further deterioration in parents’, and in particular, women’s productivity and career prospects.
- Flexible furloughing: A flexible furlough scheme could help to open up the labour market – to include those picking up extra childcare duties – and incentivise business investment in new technologies that allow more workers to work from home.
- Data availability: The UK lags other major economies in the availability of data for policy analysis, so there must be an expanded effort to collect data such as financial transaction data, which provide a picture of economic activity in near real-time. Government and supporting bodies should seek transaction data from UK financial institutions for the purpose of monitoring the impact of COVID-19 crisis and associated policy interventions.
Prof Sir Tim Besley CBE FBA, School Professor of Economics and Political Science at LSE and a member of the DELVE initiative, said:
“Pitting health and economic outcomes against each other is unhelpful. It is wrong to assume that the only way to get the economy back on its feet is through an excessive loosening of restrictions. Targeted policies that are sensitive both to the spread of the disease and economic costs are needed.”
“While physical distancing measures negatively impact certain businesses, there are adaptations we can make to our ways of doing business. An optimal public health strategy will complement economic recovery while minimising the risk of a resurgence of the epidemic. By taking the right measures to protect health – for example by getting test-track-isolate right and introducing more than the minimum statutory sick pay for those who don’t have it – we open up many more doors for businesses that can keep people working and assist in containing the spread of the disease.”
Prof Lord Nick Stern FRS FBA FAcSS, Chair of Economics and Government at LSE and a member of the DELVE initiative, said:
“In any economic and social shock, the best course of action is to take immediate steps towards long-term recovery, rather than waiting. COVID-19 crisis has been an urgent wake-up call for the future and preparations for future recurrence of the epidemic – and for future possible coronaviruses – will be repaid by helping to mitigate the impact on schools, the NHS, public transport and supply chains, and the economy as a whole. We must recognise and act on the fragilities of the old systems.”
Professor Abi Adams-Prassl, Senior Research Fellow and Associate Professor at the Department of Economics, University of Oxford, and a contributor to the report, said:
“Sound policy analysis requires good data. We would have a clear advantage when monitoring the impact of the epidemic on the economy and building a response if data from both private and public sources were made more readily available to researchers and policy analysts. Evidence from other countries suggests this can be done; improving data availability should be an urgent priority for the UK.”
The Royal Society is grateful to the Leverhulme Trust for its support for the Society’s pandemic response work.
The full report can be accessed at the DELVE initiative github: http://rs-delve.github.io/reports/2020/08/14/economic-aspects-of-the-covid19-crisis-in-the-uk.html