Economists: Stay-at-home orders under COVID-19 have slashed United States’ GDP by nearly $1.2 trillion
Virginia Tech economists in a new paper have found that the output loss in the United States’ GDP hit roughly $1.156 trillion from March 19 to April 15, a 26 percent drop of total U.S. output from the same fiscal period last year. Divided by the current U.S. population of 328.2 million, the loss per person is averaged at about $3,521 during this period.
According to Kwok Ping ‘Byron’ Tsang, an associate professor of economics in the Virginia Tech College of Science, this represents the fastest, deepest plunge in the United States’ GDP (Gross Domestic Product) since the calculation index was started in 1944. He adds that the per-person loss estimation means that some people are impacted more than others and in different ways, depending on the sector in which they work.
“We looked at how stay-at-home orders issued by almost all states affect U.S. output,” said Tsang, “Taking into account of the proportion of jobs that can be done at home and what businesses are considered ‘essential,’ we were able to calculate the output drop.”
The paper, now undergoing peer review before publication, was authored by Tsang and Shaowen Luo, an assistant professor of economics, and Zichao Yang, a fourth-year graduate student in the department.
Additionally, using a standard epidemiological model, Tsang and his colleagues also calculated the hypothetical number of infections if no such stay-at-home orders were imposed. Using that number and comparing it with the output loss, they calculated the “cost per infection reduced” to be about $150,000.
In the paper, the Virginia Tech team used first-quarter 2019 totals (in current dollars) totals of $21,099 billion, divided by 90 days for a GDP per day estimate of $234 billion for the estimated 34-day period from March 19 to April 15. The GDP includes all 50 U.S. states and the city of Washington, D.C.
Tsang calls the estimates “conservative,” and indicates actual GDP losses are deeper. First, to keep their analysis simple, the team focused on supply and did not consider demand-side adjustments. Second, for employees who have moved to work-from-home status, it is highly unlikely that labor input remains at 100 percent. Employees also must juggle child care, home school, and more stressors. “Both limitations suggest that the estimates we provide in this paper are likely to be biased downward,” the team wrote.
Tsang and team found, not surprisingly, that the entertainment, leisure and hospitality sector was hardest hit, followed by the manufacturing and retail trade sectors. In identifying essential jobs, Tsang, Lao, and Zang followed federal guidelines, which are more restrictive than what states actually consider.
“In response to the spread of coronavirus, different kinds of restrictions on activities are imposed in a large number of countries,” the authors wrote. “Either encouraged or required, people keep social distance and work from home, businesses that involve face-to-face interactions are closed down, air travel is reduced, and some 'nonessential' economic activities are put on hold. Clearly, such voluntary or compulsory actions have dire consequences for the economy."