Impacts on the U.S. Macroeconomy of Mandatory Business Closures in Response to the COVID-19 Pandemic

Abstract

We estimate the macroeconomic impacts of mandatory business closures in the U.S. and many other countries in order to control the spread of the COVID-19. The analysis is based on the application of a modified version of the GTAP computable general equilibrium (CGE) model. We simulate mandatory closures in all countries or parts of countries that had imposed them as of April 7 for three-month and six-month cases. For the three-month scenario, we estimate a 20.3% decline of U.S. GDP on an annual basis, or $4.3 trillion. The employment decline of 22.4% in the U.S. for the three-month closure represents 35.2 million workers for that time period. Should the mandatory closures be extended to six months, these negative impacts slightly more than double. The employment impacts are slightly greater in percentage terms than the GDP impacts because most service sectors, which are generally more labor-intensive, are much more negatively impacted by the closures than are manufacturing sectors and other critical sectors. Our results should be considered upper-bound estimates given such assumptions as businesses laying off workers no longer paying them wages or salaries. Note also that the paper examines the mandatory closures alone and does not factor in any countervailing fiscal or monetary policies.