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Economic Well-Being Matters, Too

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Economic Well-Being Matters, Too

Policymakers should move toward a phased-in, regional approach to re-openings—and pay attention not only to infections but also unemployment. May 12, 2020
Covid-19
Economy, finance, and budgets

Unprecedented public-health interventions, taken to slow the spread of the coronavirus, have led to massive economic disruptions. Policymakers have proposed guidelines that allow a loosening of these restrictions, but most are based solely on current health indicators. Such measures are, of course, a primary consideration, but they shouldn’t be the only ones. Economic well-being matters, too.

Consider, for example, Menominee County, the smallest and poorest county in Wisconsin, with a median household income roughly 40 percent below the statewide level and a poverty rate over 26 percent. Menominee County recovered relatively well after the 2008 recession, with poverty and unemployment falling between 2010 and early 2020. But all those employment gains have now been erased. Since March 15, over 27 percent of Menominee’s labor force has applied for unemployment, bringing the countywide estimated jobless rate up to nearly 34 percent. As of May 5, the county reports only one confirmed case of Covid-19.

When evaluating whether to maintain, loosen, or perhaps tighten restrictions on activity, officials must consider economic consequences along with health effects. Any reopening plan involves tradeoffs, balancing the increased health risk of resuming economic activity against the economic costs of lost jobs, incomes, and the hardship associated with continued economic restrictions.

Up to now, guidelines have mostly been applied broadly, at the state level, but statewide measures may be too broad to deal effectively with the crisis in widely disparate urban and rural parts of states, and to provide the appropriate balance between objectives. The economic and health risks and tradeoffs differ substantially across locations: areas with older and less healthy populations face higher health risk, while richer populations with more telework jobs face lower economic risk.

One difficulty in making these determinations has been the lack of available economic data. While Covid-19 case counts, test results, hospitalizations, and deaths are updated daily, much less immediate information is available about economic effects. Official economic statistics become available on a delayed basis, making it hard to assess current economic conditions, especially in a time of such rapid change.

This obstacle is not insurmountable, however. Perhaps the best gauge of conditions is initial unemployment applications. By tracking this at a weekly or even daily frequency, one can quickly see the carnage that has been wrought on the labor market since the Covid-19 crisis began—up to 20 percent of the labor force in some areas has filed for unemployment. Many states break down claims further by county, allowing for a more granular analysis.

New data sources and metrics have been developed during this crisis. Spurred by a need to track the economy in real time, more and more companies have made previously proprietary data available to researchers. Anonymized foot-traffic data from cellphone locations has allowed for high-frequency, sophisticated analysis of economic activity. Such data only capture movement, not transactions, and cannot fully account for the massive transition to remote work or the enormous increase in online commerce. But transactions data on consumer spending have seen increasing application, which helps to adjust for some of these changes. Thus, new data sources enable us to track changes in economic activity across industries and locations more effectively, with little processing delay.

As a result, researchers can now estimate regional economic impact at a high enough frequency to inform policy decisions. As more official data come in, these new approaches will be refined and improved. But even now, imperfect though these data are, they should be used to assess economic impact.

At the Center for Research on the Wisconsin Economy, which I direct, we produce and update weekly measures of the economic impact of the crisis as well as current health indicators, at a regional level. We estimate that the Covid-19 pandemic in Wisconsin is costing roughly $1.5 billion per week in lost economic activity. We found a 27 percent decline in output and a 16 percentage-point increase in unemployment statewide through May 5. Moreover, we find that, on average, the counties that were in the worst economic condition prior to the pandemic have had the largest declines in economic activity.

We also analyze health factors at a regional level. We find that at least two of the state’s seven Health Emergency Readiness Coalition (HERC) regions still face high health risks. More encouragingly, at least three HERC regions have seen very low rates of infection and are close to satisfying current health guidelines for reopening. Some counties within these regions, however, do face higher risks from infection due to a larger vulnerable population and lower health-system capacity.

Policymakers should move toward a phased-in regional relaxation of social-distancing guidelines, though removing stay-at-home orders will not be an economic panacea. We estimate that these statewide decrees account for only 20 percent of lost economic output, with the balance due to other, mostly voluntary, distancing measures. Only as consumers and workers gradually regain confidence in their safety will they return fully to daily activities. A careful consideration of the health and economic factors, which takes into account regional variation, will help move this process along.

Photo: nikom1234/iStock

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