Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247171 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 902
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
We construct a quantitative model of an economy hit by an epidemic. People differ by age and skill, and choose occupations and whether to commute to work or work from home, to maximize their income and minimize their fear of infection. Occupations differ by wage, infection risk, and the productivity loss when working from home. By setting the model parameters to replicate the progression of COVID-19 in South Korea and the United Kingdom, we obtain three key results. First, government-imposed lock-downs may not present a clear trade-off between GDP and public health, as commonly believed, even though its immediate effect is to reduce GDP and infections by forcing people to work from home. A premature lifting of the lock-down raises GDP temporarily, but infections rise over the next months to a level at which many people choose to work from home, where they are less productive, driven by the fear of infection. A longer lock-down eventually mitigates the GDP loss as well as attens the infection curve. Second, if the UK had adopted South Korean policies, its GDP loss and infections would have been substantially smaller both in the short and the long run. This is not because Korea implemented policies sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt the economy less than a blanket lock-down. Finally, low-skill workers and self-employed lose the most from the epidemic and also from the government policies. However, the policy of issuing "visas" to those who have antibodies will disproportionately benefit the low-skilled, by relieving them of the fear of infection and also by allowing them to get back to work.
Subjects: 
Covid-19
SIR model
quarantine
antibody test
occupations and sectors
economic inequality
JEL: 
E24
J22
J24
Document Type: 
Working Paper

Files in This Item:
File
Size
1.02 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.