Economics Lessons From The Pandemic

COVID-19 has been a massive disaster. But it has also been like a massive natural experiment. During the last nine months, we've learned a lot about the coronavirus, its economic effects and effective interventions to help manage the pain of another wave. So we decided to sum up some of the economic research.

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Poverty ... fell?

In April, the unemployment rate hit 14.7% — the most disastrous figure since the Great Depression. Over 20 million Americans had lost their jobs or been furloughed. And yet something crazy happened — the national poverty rate actually declined.

That's one of the findings of a study by economists Jeehoon Han, Bruce D. Meyer and James X. Sullivan, who crunched data from the Census Bureau about income and poverty during the coronavirus pandemic. They found that the poverty rate fell from 10.9% in January and February to 9.4% in April, May and June. They credit the decline to government action, especially with the CARES Act, which massively increased unemployment benefits and sent large checks to middle- and low-income Americans. Had the government not done this, they found, poverty would have risen over 2.5 percentage points.

Since the expiration of some of the federal government's assistance this summer, the poverty rate has been ticking back up, erasing the decline during the first phase of the pandemic.

The mighty are getting mightier

A few months ago, we published a newsletter that explained why the crisis was making powerful corporations even more powerful. As consumers sheltered in place, they cut spending at small businesses and shifted more spending online — benefiting megacorporations like Amazon. On top of that, the government seemed to be buttressing big corporations while leaving many small and midsize businesses scrambling. But another factor has been playing in the big guys' favor: recruiting opportunities.

Economists Shai Bernstein, Richard R. Townsend and Ting Xu analyzed data from AngelList Talent, a job search site for tech and startup jobs, to see how the pandemic has affected job searches. They found that "job seekers shifted their searches toward larger firms and away from early-stage ventures" and were more open to lower salaries and a broader range of positions. When it comes to recruiting talent, they found, this shift has benefited large, more established companies while hurting smaller upstarts. They conclude that this "flight to safety" of qualified job seekers during the downturn has hurt entrepreneurship and competition.

Office comeback?

According to Gallup, back in April, a jaw-dropping 51% of workers reported they were "always" working remotely. A cool study by Steve Cicala shows how this could be seen in electricity use, with commercial and industrial buildings — where we have traditionally worked — using between 12% and 14% less electricity than they would have during normal times and residential buildings using an average of 10% more.

But the remote-work wave is already receding. Gallup's most recent survey, from mid-September, found the share of people who report "always" working remotely has shrunk to 33%. Expect power bills at office parks and skyscrapers to start climbing.

COVID-19 is changing minds

Economists Alex Rees-Jones, John D'Attoma, Amedeo Piolatto and Luca Salvadori conducted a survey of over 2,500 Americans to see how COVID-19 has affected their opinions of government programs. They found "real and perceived exposure to the consequences of COVID-19 strongly predict support for long-term expansions to unemployment insurance and government-provided healthcare." This is true, they found, even when controlling for people's political beliefs and demographic characteristics. Rees-Jones says, "Compared to the average survey respondent, a respondent facing a very large number of county deaths (more than 95% of other respondents) is 6.3 percentage points more likely to support long-term expansions to unemployment insurance and 5.8 percentage points more likely to support long-term expansions to government-provided healthcare." In short, it seems that COVID-19 has increased political support for bigger government.

PPP didn't work — or did it?

The Paycheck Protection Program was the federal government's big effort to save small businesses. It provided grants and loans to help them survive the pandemic. Economists are still debating whether PPP was effective. Some studies, including one by Raj Chetty, John N. Friedman, Nathaniel Hendren and Michael Stepner and another by Christopher Neilson, John Eric Humphries and Gabriel Ulyssea, found little or no evidence that the program helped save jobs at small businesses. Others, including one by Robert P. Bartlett III and Adair Morse and another by Alexander W. Bartik, Zoe B. Cullen, Edward L. Glaeser, Michael Luca, Christopher T. Stanton and Adi Sunderam, found that the program helped increase the probability that small businesses would survive the pandemic. This debate over the effectiveness of PPP in saving small businesses and jobs matters because it should inform what relief package comes next, if any.

Motorcycles can be dangerous

In early-to-mid August, almost half a million motorcyclists congregated in Sturgis, S.D., for an annual motorcycle event. It offered economists Dhaval M. Dave, Andrew I. Friedson, Drew McNichols and Joseph J. Sabia the opportunity to see the effects of a COVID-19 superspreader event.

The researchers used data from cellphones to measure the movement of people, along with data from the Centers for Disease Control and Prevention to measure the spread of the coronavirus. They found that by Sept. 2, about a month after the rally began, COVID-19 cases increased by approximately six to seven cases per 1,000 people in the county where the event was held. Meanwhile, they found that "counties that contributed the highest inflows of rally attendees experienced a 7.0 to 12.5 percent increase in COVID-19 cases relative to counties that did not contribute inflows." Not everyone buys it. Researchers at Johns Hopkins University have criticized this study's design, arguing that its findings should be "interpreted cautiously."

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