COVID‐19 and the Economy

Abstract

The COVID-19 pandemic and the subsequent measures of social distancing are having a huge impact on the economy. Many businesses were asked to close down temporarily or are facing serious operational challenges, while others are experiencing a sharp increase in the demand for their services. Many individuals have lost work, either because jobs closed down temporarily or permanently or because they present health risks to which the individuals are vulnerable. Schools closed down and many parents are shouldering the entirety of the childcare and educational needs of their children. The economy came to a sudden standstill and the magnitude of the recession that is upon us is now becoming evident. The effects of this unprecedented shock are very heterogeneous across individuals and interact with many pre-existing vulnerabilities across race and class. In the meantime, governments around the world have been searching for the best tools to protect their citizens and businesses during the period of rapid contagion and for ways of restarting the economy once the health risk starts to subside. In an attempt to understand the contours of this crisis and to inform policy, many economists have been using the tools at their disposal to document what is happening and understand how best to respond to the immense challenges facing people, firms and governments. Given the critical importance of providing up-to-date evidence to inform the academic and policy debate, Fiscal Studies is publishing in this issue a symposium of invited papers on COVID-related research, covering a range of issues. With one exception, the work focuses on the UK case, and many of the projects stem from ongoing research by staff at the Institute for Fiscal Studies. The symposium starts by bringing out dimensions of ethnic and other inequalities in the effects of this crisis, in papers by Lucinda Platt and Ross Warwick and by Richard Blundell, Monica Costa Dias, Robert Joyce and Xiaowei Xu. The paper by Cathal O'Donoghue, Denisa M. Sologon, Iryna Kyzyma and John McHale shows how the COVID-19 pandemic is affecting the gross incomes of families in Ireland and the extent to which fiscal policy is offering insurance against this shock. The next two papers turn attention to the health crisis. The first, by James Banks, Heidi Karjalainen and Carol Propper, builds on previous research to discuss the potential long-term consequences of this recession for health outcomes and how these may vary with socio-economic and demographic characteristics. The second, by Carol Propper, George Stoye and Ben Zaranko, considers the huge challenges facing the National Health Service in the UK and the potential implications of this crisis for the delivery of healthcare in the short and medium term. The social distancing measures have had severe consequences not only for the incomes of families, but also for the goods and services that are available in the market and their desirability. This has altered the consumption bundle of families and the value of businesses in different sectors of economic activity. A paper by Richard Blundell, Rachel Griffith, Peter Levell and Martin O'Connell discusses the implications of this crisis for the measurement of the Consumer Prices Index. The share prices of firms can be used to identify the sectors that are struggling the most, as noted in the paper by Rachel Griffith, Peter Levell and Rebekah Stroud. The road ahead is treacherous and governments will be looking into ways of promoting economic recovery while keeping infection rates low and protecting those who have lost their jobs or are unable to return to work under the current health risks. The final paper in the symposium, by Monica Costa Dias, Robert Joyce, Fabien Postel-Vinay and Xiaowei Xu, discusses the challenges of this crisis for labour market policy.