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Inequality of fear and self-quarantine: Is there a trade-off between GDP and public health?

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  • Aum, Sangmin
  • Lee, Sang Yoon (Tim)
  • Shin, Yongseok
Abstract
We construct a quantitative model of an economy hit by a pandemic. People choose occupations and make work-from-home decisions to maximize income and minimize their fear of infection. Occupations differ by wage, infection risk, and the productivity loss when working from home. The model is calibrated to South Korea (SK) and the United Kingdom (UK) to compare SK’s intensive testing and quarantine policy against UK’s lockdown. We find that SK’s policies would have worked equally well in the UK, dramatically reducing both deaths and GDP losses. The key contrast between UK’s lockdown and SK’s policies was not in the intensity of testing, but weak restrictions on the activity of many (UK) versus strict restrictions on a targeted few (SK). Lockdowns themselves may not present a clear trade-off between GDP and public health either. A premature lifting of the lockdown raises GDP temporarily, but infections rise over time and people voluntarily choose to work from home for fear of infection, generating a W-shaped recession. Finally, we find that low-skill workers and self-employed always lose the most from both the pandemic itself and containment policies.

Suggested Citation

  • Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2021. "Inequality of fear and self-quarantine: Is there a trade-off between GDP and public health?," Journal of Public Economics, Elsevier, vol. 194(C).
    • Handle: RePEc:eee:pubeco:v:194:y:2021:i:c:s0047272720302188
    DOI: 10.1016/j.jpubeco.2020.104354
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    1. Adam Sheridan & Asger Lau Andersen & Emil Toft Hansen & Niels Johannesen, 2020. "Social distancing laws cause only small losses of economic activity during the COVID-19 pandemic in Scandinavia," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 117(34), pages 20468-20473, August.
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    3. Aum, Sangmin & Lee, Sang Yoon (Tim) & Shin, Yongseok, 2021. "Inequality of fear and self-quarantine: Is there a trade-off between GDP and public health?," Journal of Public Economics, Elsevier, vol. 194(C).
    4. Rebucci, Alessandro & Chudik, Alexander & Pesaran, M. Hashem, 2020. "Voluntary and Mandatory Social Distancing: Evidence on COVID-19 Exposure Rates from Chinese Provinces and Selected Countries," CEPR Discussion Papers 14646, C.E.P.R. Discussion Papers.
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    13. Fernando E. Alvarez & David Argente & Francesco Lippi, 2020. "A Simple Planning Problem for COVID-19 Lockdown," NBER Working Papers 26981, National Bureau of Economic Research, Inc.
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    15. Lee, Tim & Shin, Yongseok, 2017. "Horizonatal and Vertical Polarization: Task-Specific Technological Change in a Multi-Sector Economy," TSE Working Papers 17-800, Toulouse School of Economics (TSE).
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    More about this item

    Keywords

    COVID-19; SIR model; Testing; Quarantine; Economic inequality;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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