Commercial trucks cross over the Ambassador Bridge at the international border crossing during the COVID-19 outbreak, in Detroit, Michigan, March 18, 2020
Photo by Rebecca Cook/
April 28, 2020
Since the outbreak of COVID-19, social distancing has provided a means to “flatten the curve” and hopefully, reduce the curve. There are significant epidemiological and economic risks and uncertainties to the policies. New estimates for the epidemiological consequences and criterion for when these policies are removed do not tell the full story of social impact by themselves and must be paired with clarity around economic impacts, and how these vary by industry sector.
To better ground the economic costs of remaining in effect, we have estimated the economy-wide impacts of a set of social distancing policies that have been used across the United States. Our estimates provide a sense of the likely economic toll due to these policies.
The economic toll is not just tied to those industries directly impacted by these policies such as restaurants and bars, but its impacts are being felt across the board due to supply chain disruptions and a reduction in demand. Weekly unemployment numbers (PDF) cut across every geography, industry, and class. The important interconnections that make an economy strong also provide a means for disruptions to cascade throughout the entire economy.
Our results show that the economic costs of these policies vary widely across states, with aggregate income declines of 45 percent in states like Indiana, Wisconsin and Iowa for our worst-case scenario. These results do not take into account the reduction in demand that is likely to arise due to unemployment and households staying home. Based on our national level results, for every week that we have strict social distancing policies in place, we are reducing the Gross National Income (GNI) by approximately 0.5 percent. That is, if these policies are kept in place for three months, it would likely mean a drop of 6 percent due solely to the social distancing policies. If a modest 10 percent reduction in household demand is included, these results increase to a 9 percent drop in GNI.
Figure 1: Distribution of Percent Change in Weekly Gross State Income
Source: An Estimation of the Economic Costs of Social-Distancing Policies, WRA173-1, RAND, 2020.
It is important to recognize that these economic costs are balanced by decreasing infection, hospitalization, and deaths. It is up to the state and local decisionmakers to weigh the benefits and costs of these policies. Our hope is that we are helping provide one side of the story.
Aaron Strong is an economist and Jonathan Welburn is an operations researcher at the nonprofit, nonpartisan RAND Corporation. Both are professors at the Pardee RAND Graduate School.
Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.