The COVID‐19 Economic Crisis

In their quest to slow the spread of COVID‐19 and to protect health services from overcrowding, governments in many countries introduced severe social distancing measures at the start of the pandemic that led to the closure of schools, many businesses and entire sectors of the economy. The economic lockdown had immediate and dramatic consequences for key domains of life, including what individuals and families could do with their time, their ability to work and earn, the services and goods that they could consume and their health. The crisis that ensued also exposed existing vulnerabilities, especially among the young, the least skilled and the poor. New policies were hastily designed and introduced to add further layers of insurance and protect the jobs and livelihoods of those most affected by the lockdown. As we now move into the second wave of this crisis, it is critical that we learn from the recent events and reflect on the challenges ahead. This is essential to inform the effective design and targeting of new public interventions aimed at continuing to protect families and businesses while helping to rebuild the economy.

The current issue of Fiscal Studies aims to contribute to this academic and public debate. In a joint venture with the IFS Deaton Review of Inequalities, it collects invited contributions from some of those who have been studying the development of this crisis, its consequences for the well‐being of individuals and families, and the public response to it. These papers focus on a broad set of issues, documenting both the short‐ and long‐term effects of the crisis on a range of issues covering employment, earnings, learning, health and consumer prices. Furthermore, the papers in this issue reflect on the role of public policy in providing support to families and firms over this period and in helping to restart the economy as we emerge from the pandemic.

The issue starts off with a paper by Timothy Besley and Nicholas Stern that sets out a framework for thinking about how to balance the trade‐off between health and economic outcomes when designing effective policy interventions in the midst of a pandemic. The suggested approach builds and expands upon the cost‐effectiveness analysis, which is used to determine the economic cost of improving infection rates by contrasting the marginal economic costs and health benefits of alternative treatments. In the context of a pandemic, the goal is to look for policy innovations that increase efficiency, allowing for the trade‐off between health and economic outcomes to be partly relaxed. The difficulty in making such an assessment, however, is that the costs and benefits of each policy will depend critically on how individuals respond to it – an area where there are important knowledge gaps. Moreover, while efficiency considerations are important, the distributional effects of alternative policies will also play a major role in determining their desirability. The paper discusses various combinations of policies within this framework.

The distributional effects of infection containment measures and compensating insurance policies are particularly relevant in contexts where the onset of the pandemic was met with depleted safety nets that are ill suited to support families facing job loss and large cuts in take‐home pay. This was the case in the US. The paper by Robert Moffitt and James Ziliak provides an insightful account of the redistributive properties of the US tax and benefit system and how it changed over the last two decades, paying special attention to its ability to protect families against widespread economic hardship. The paper shows that only a small share of the US welfare system acts as an automatic stabiliser and that, with the exception of unemployment and food assistance, the current safety net provided a largely inadequate response to the employment losses triggered by the COVID‐19 pandemic. The paper discusses possible reforms that would reinforce social protection during economic downturns.

The effects of this crisis on the employment and earnings capacity of many workers are likely to be long‐lasting. Losing one's job during a downturn, when labour demand is depressed, sets workers on a possibly long uphill journey just to reach the same level of earnings and an equivalent type of job that they had before the recession. The dire prospect of prolonged job loss is likely to affect other dimensions of life too, including health and mortality. The paper by Till von Wachter presents some staggering estimates of the employment, earnings and mortality costs of the dramatic spikes in job loss and unemployment that occurred during the first six months of the pandemic in the US. The paper discusses potential policy reforms that could help limit the damage from layoffs going forward.

Many European countries have turned to short‐term compensation or furloughing schemes to protect job matches during the pandemic and to minimise the large long‐term effects of job destruction for workers and for the economy. The paper by Abi Adams‐Prassl, Teodora Boneva, Marta Golin and Christopher Rauh examines the Coronavirus Job Retention Scheme implemented in the UK with the stated aim of protecting jobs, firms and workers during the crisis. It shows how the coverage of the programme varies with the characteristics of the workers, firms and jobs, and that the terms under which workers have been furloughed also depend on these characteristics. Implementing a hugely generous policy such as this demands careful consideration of how to move workers back into their regular activities once minimum safety conditions can be met, a process likely to require coordination with other policy instruments supporting the needs of returning workers while infection rates are still high.

The special issue then turns to examining how the pandemic crisis interacted with pre‐existing inequalities and vulnerabilities to document its distributional impacts along various dimensions. The paper by Claudia Hupkau and Barbara Petrongolo focuses on gender inequalities in the effects of the COVID‐19 crisis, on employment, working hours, earnings and time in home production. For the UK, the paper shows that while women shouldered, on average, a larger share of the increase in childcare needs during this period, fathers in many households became the main provider of care.

Alison Andrew, Sarah Cattan, Monica Costa Dias, Christine Farquharson, Lucy Kraftman, Sonya Krutikova, Angus Phimister and Almudena Sevilla study children and learning during lockdown. With the closure of schools, learning activities were moved to the home and parents became central (and sometimes sole) actors in supporting this process. Using data for England, the paper reports substantial heterogeneity across children in the experiences of home learning, including time spent learning, the nature of learning activities and the availability of learning resources. Differences in home‐learning experiences are found to be compounded by inequalities in the resources provided by schools. They are also strongly associated with socio‐economic status, in some cases more so than before the pandemic, a result that suggests they will contribute to further widening of the achievement gap between children from poorer and better‐off families.

Restrictions on social interactions, increased uncertainty and economic insecurity are also likely to affect mental health and well‐being. The papers by James Banks and Xiaowei Xu and by Zachary Swaziek and Abigail Wozniak look into how mental health has changed during the pandemic in the contexts of the UK and the US, respectively. Both papers report dramatic drops in mental health during the first months of the pandemic, alongside large heterogeneity in the effects of the crisis. Estimates for the UK reveal increasing inequalities in mental health during the pandemic, particularly as women and young adults experienced especially pronounced drops in mental health. The study on the US documents strong disparities in mental health and shows that these disparities were generally preserved during the pandemic, although with exceptions.

Finally, the paper by Xavier Jaravel and Martin O'Connell investigates how the pandemic affected consumer prices and the exposure of different consumer groups to the changes in prices. High‐frequency changes in shopping behaviours and promotions can distort the measurement of inflation, an issue that might have been particularly important during the early stages of the pandemic. The paper uses high‐frequency scanner data to investigate the drivers of the spike in inflation that happened at the beginning of the lockdown in Great Britain. Despite changing consumer behaviour during the lockdown, the spike in inflation was driven mainly by a reduction in price and quantity promotions. The paper finds that low‐income consumers experienced moderately lower inflation over this period than their higher‐income peers, a result that is driven by their lower use of promotions.

The COVID‐19 pandemic has been unprecedented in modern times in its dual tolls on global health and economic well‐being. The research on the crisis is in its infancy, but the papers in this special issue establish a baseline and an ambitious agenda for research and policy going forward.