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UCI Podcast: COVID-19’s long-term economic and health impacts

Early intervention can stave off pandemic's worst long-term effects, Vellore Arthi says

December 9, 2020
UCI Podcast: COVID-19’s long-term economic and health impacts
Vellore Arthi, an assistant professor of economics, discusses the long-term economic and health impacts of the COVID-19 pandemic in this episode of the UCI Podcast. Courtesy of School of Social Sciences

COVID-19’s disastrous impacts are obvious: nearly 300,000 deaths in the U.S., millions of jobs lost and a financial downturn that prompted a $2 trillion economic stimulus. These impacts are front and center in the public consciousness, especially as people mourn lost loved ones and worry about how lost wages threaten their ability to pay rent.

But what about two, three or four decades down the line? What will be the long-lasting effects of the pandemic on individuals’ health and finances — and the economy as a whole?

Vellore Arthi, an assistant professor of economics at UCI, has examined the long-term health and economic consequences of previous pandemics and financial crises, including the Black Death of the 14th century, the 1918 influenza pandemic and the Great Depression of the 1930s. In this episode of the UCI Podcast, Arthi discusses what these previous pandemics and downturns can teach us about today’s crisis — and how we can prevent the worst results.

In this episode:

Vellore Arthi, assistant professor of economics at UCI

Disease, Downturns, and Wellbeing: Economic History and the Long-run Impacts of COVID-19,” a National Bureau of Economic Research working paper co-authored by Assistant Professor Vellore Arthi.

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Transcript

AARON ORLOWSKI, HOST

The COVID-19 pandemic isn’t the first decimating disease. And today’s financial downturn isn’t the first economic crisis. These kinds of upheavals have happened before. And the consequences lasted long after the initial toll.

What can history teach us about the long-term health and economic impacts of the COVID-19 pandemic? And how can we prevent the worst results?

From the University of California, Irvine, I’m Aaron Orlowski. And you’re listening to the UCI Podcast. Today, I’m speaking with Vellore Arthi, who is an assistant professor of economics here at UCI, and whose research is at the intersection of economic history, development, labor and health.

Professor Arthi, thank you for joining me today on the UCI Podcast.

VELLORE ARTHI

Thank you so much for having me. It’s great to speak with you.

ORLOWSKI

So right now, people are experiencing the consequences of the pandemic. There’s health pain with the deaths of family and friends, and there’s economic pain with lost jobs. And these consequences are really real and immediate and top of mind. But in your view, why do we need to look at history to better understand the long-term consequences of the pandemic?

ARTHI

Sure. So there are several reasons for this. I think the first and perhaps most important one, obviously, is just that history offers us the kind of timescale that we need in order to be able to think about these long-run effects, to be able to follow up throughout people’s lives or careers, to better understand the total life course impact on health and wellbeing. So that’s one really, really big and fundamental reason. You know, another kind of reason is that history offers us a lot of rich and large-scale and sometimes even longitudinal data, the likes of which are often difficult to access with much more recent pandemics or recessions, given the kind of privacy concerns that arise when people are still living and this is people’s data. Of course, there’s also the fact that this particular pandemic and the corresponding downturn are substantially larger in size and scope than many of the more recent crises that we’ve seen, both economically and in terms of public health. So it makes sense to seek out, perhaps, more suitable competitors from a deeper kind of historical archive.

And then finally, and I think that this is super relevant as well, is that the pandemic is still unfolding. So a lot of the key facts about how it works and what effects it has, we’re still coming to grips with. And so we need to be able to draw on a really diverse set of evidence as our best available knowledge of COVID-19 changes. So … comparison points change, and so what’s kind of neat about history is that it offers a range of possible comparisons and scenarios, in terms of more and less lethal pandemics.

ORLOWSKI

Well, and we’re going to jump into some of those historical comparisons in a second. But before we do so, I think it would be helpful to just set the stage on the current situation. So how badly was the economy hurt by the pandemic?

ARTHI

It’s been pretty bad so far. It’s been estimated that the U.S. GDP (gross domestic product) fell by about 9.5 percent in the second quarter of 2020, relative to the same period in 2019. So looking at that quarter-to-quarter year-on-year comparison, we’re looking at a pretty large drop in GDP. Unemployment rates during COVID-19 have also risen substantially. So we saw a peak of about 15 percent in April of 2020 during the worst part of the initial part of the pandemic. And we’re now, as of September 2020, we’re at about 8 percent unemployment. And so just for context peak, unemployment during the 2008 recession was around 11 percent. So we’re kind of currently, even with some little bit of recovery, sitting at roughly the worst of 2008. And it’s worth mentioning, perhaps, that the economic pain has also been pretty uneven across space, across sectors and across groups. So for instance what I’ve told you about are these average unemployment rates, but, for instance, for minorities, for women, for young workers and for lower income workers, and certainly the intersection of these groups, the effects of tended to be much worse and they’ve been much more harder hit, than these kinds of averages would tell us.

ORLOWSKI

So in the spring, the federal government sent out these stimulus checks that many people received as part of the CARES Act. How did that economic stimulus compare to other economic stimulus packages in history? Was that substantially larger or similar size?

ARTHI

Yeah, it’s roughly on the same order of magnitude as what we saw in response to the Great Depression, which is pretty stark, I think. So for instance, the CARES Act alone, not including things like the PPP (Paycheck Protection Program) was roughly equal to about 10 percent of 2019 GDP. And then your comparison during the Great Depression, federal outlays as a percentage of GDP rose from about 3.3 percent at the start of the Great Depression to about 9.8 percent by 1934, which was just after the worst period of the Great Depression.

ORLOWSKI

So it was a response, essentially, on a similar scale as the response to the Great Depression.

ARTHI

Yeah.

ORLOWSKI

That is a huge, huge response. So when you look at history, and we’ve been talking about the economic side so far, but do you see examples in history of the kind of double impact that the pandemic has caused today — where there’s both this huge health problem and an economic shock at same time?

ARTHI

Yeah, it’s pretty rare to see a pandemic precipitate economic disruption of this scope and scale and severity. But a couple of examples do come to mind. One is the Black Death or Great Plague that took place in the 14th century. So that was another global pandemic, but one which was substantially deadlier than COVID-19 has been so far. So it killed off roughly two-thirds of Europe’s population, just to give you a sense of what the magnitude of suffering was there. And this sort of devastating death toll had really dramatic demographic consequences. And those demographic consequences in turn had economic ones. So both the size and the age composition and population changed as a result of this mass mortality and this created labor scarcity, which drove up wages. And this fact in turn precipitated other major demographic and economic and social and cultural and institutional changes. Some research points to the plague as having been a major contributor, actually, to sustained rises in Western European living standards over the ensuing century, and to that region’s relatively rapid economic development compared to other global regions during the early modern period.

So it really indicates that a very lethal pandemic can be tremendously economically disruptive and can reshape the entire economic and social and institutional structure. And you see somewhat similar evidence in Subsaharan Africa as a result of the AIDS epidemic. So that’s a more modern example. And so there, we see that there’s a large degree of mortality in prime-age adults. And between that mortality response and between the fertility response due to the prevalence of AIDS, these factors are thought to contribute to increases in living standards for the surviving generations of children.

So I think what this really indicates is that very lethal pandemics are likely to cause a lot of economic destruction. So I think that’s what sets sets this pandemic apart a little bit is that we have a pandemic that is, thankfully, relatively less lethal, but that which many people survive and may come to face these kind of long run disadvantages as a result of their exposure either to the economic downturn or morbidity consequences from falling ill and recovering during this pandemic episode.

ORLOWSKI

Well, and you explored some of these potential long-term consequences in a recent working paper published by the National Bureau of Economic Research. And that looked at two particular huge events in history, the 1918 influenza pandemic and the Great Depression. So why are those two examples really relevant to the situation today?

ARTHI

I think both of them are chosen in large part because the scale is substantially more comparable, or other kinds of features of the crisis, are much more comparable to COVID-19, in its dimensions, both as a public health crisis, a pandemic, and as an economic downturn, than are other more recent examples that we might think of like, SARS or things like that. So the 1918 pandemic in particular, what we know about the disease is relatively similar to what we know about COVID-19 so far. So it has a basic reproduction rate and a case fatality rate that is roughly similar to early estimates for COVID-19. So in terms of its lethality it’s at least at the same kind of order of magnitude. And of course it’s also a respiratory pandemic, right? It’s also an influenza pandemic. So other features of the epidemiology are somewhat similar.

And then the Great Depression, of course, is a really, really large-scale economic downturn, whose fiscal stimulus response and whose effect on consumer spending and unemployment and things like that is much more comparable than,and particularly at the peak of COVID-19, than what we’ve seen in, let’s say, like the 2008 recession. So we think about these as being perhaps better comparators. And then of course, they also have the benefit of giving us nearly a hundred years of follow-up data that we can look at to really understand how this impacted people who were in utero at the time of these experiences, people who were just entering the labor market at the time of these experiences and in some cases even their children and grandchildren. So we can kind of understand the possibility for intergenerational impacts of these early experiences of crisis.

ORLOWSKI

Well, let’s dive into those a little bit more. So with the 1918 influenza pandemic, what have you seen in the research, from yourself and others, about the long-term health and economic consequences of the people who lived through it, or the people who were in utero at the time?

ARTHI

Yes. So there has been a wealth of research on the kind of long-run experiences of children who were in utero at the time. And one of the reasons why this is such a fertile area of research is because the 1918 pandemic had this unique morbidity and mortality profile. So whereas most influenza strains, including COVID-19, have a u-shaped profile, so the youngest people and the oldest people are most severely affected, the 1918 influenza pandemic also had this little spike amongst the prime working age years, the prime childbearing years. So what this meant is that between it infecting a lot of people of prime age and between it not being as lethal a pandemic as, say, as the Black Death, you have a lot of people surviving. And so we have a lot of mothers that are perhaps pregnant at the same time as they’re sick from, and then recovering from the 1918 influenza illness. And so what this creates is this environment where fetal nutrition and fetal conditions and fetal development more generally are being adversely affected. And so what this strand of research looks at is the long-run effects when the kids that were in utero at the time become adults, enter the labor market and what their job prospects look like. And so what we see in that research is evidence that disability rates go up in adulthood, wages go down, the likelihood of welfare recipiency goes up, the likelihood of incarceration goes up. So we see a suite of human capital and labor market related outcomes that are adversely impacted, even if the child themselves was not ill, but rather experienced this suboptimal fetal environment as a result of their mother’s sickness.

ORLOWSKI

And so what about the great depression? What have you found that are some of the cascading economic impacts of that event that occurred even decades down the line?

ARTHI

Sure. So just like the evidence that we’ve seen from the 1918 pandemic, for those people who were born into the Great Depression or who experienced their early childhood period during the Great Depression, they tend to have similarly adverse outcomes on their later life, human capital and wellbeing. So they tend to have lower educational attainment, higher rates of disability, poorer cognitive and non-cognitive performance, lower incomes, things like that. But then in the Great Depression literature, there’s also this vein of papers that looks at the effects of being exposed to Great Depression conditions at critical phases during your career. And in particular, this literature focuses on the potentially adverse effects of graduating into a recession, or rather entering the labor market and making critical training decisions during recession conditions. What we see in these studies, so far at least, is substantial and pretty persistent penalties for all sorts of workers that were severely hit by the Great Depression. And this is especially true for newer labor market entrants who often faced really different constraints than pre-existing workers did, and face constraints on the scope for adaptation, in terms of waiting out jobs or whatever. Right. So what we see in this set of studies is large earning penalties amongst less educated new labor market entrants, for instance, and particularly if they were born in severely affected localities. We see overall reductions in intergenerational mobility. If you look at the kind of trajectories of sons and fathers across their careers, it appears that young men who were coming of economic age during the Great Depression have substantially worse mobility relative to their fathers than cohorts from 20 years before.

And then in some of my own ongoing research, we’ve seen evidence that younger workers were often being squeezed out of the best local employment opportunities by older workers who were either remaining in the labor market, or in the labor force rather, at higher rates or who were reentering. So, people who had been retired or had not been working, but who in response to the Great Depression and the associated stimulus policies rejoined the labor force. But it appears that some of these younger workers were at a slight disadvantage, but they also kind of pursued these adaptive strategies at a much higher rate. So the younger workers are much, much more likely to migrate, whether it’s from rural to urban areas, whether it’s across state lines, whether it’s out of the South. And kind of crucially, they were substantially much more likely to leave the farming sector, which could well end up being a gift to them in the long run because the farming sector was declining over the 20th century. And so that’s something that we’re looking at in ongoing research, is to really understand whether, perhaps despite this short run suffering faced by younger workers, whether there was some sort of a long-run silver lining as the broader structure of the economy changed, and privileged some of the new occupations that they might’ve entered.

ORLOWSKI

So for many young workers who were entering the labor force during these economic downturns, the consequences lasted for sometimes their entire careers. And so are there later health consequences that are associated with that lower economic status for an individual later in their life?

ARTHI

Yeah, exactly. So that’s, I think, what’s so insidious about having a pandemic and a recession at the same time is because either of these things can affect you through health or income channels and vice versa. So, for instance, if you became ill and then survived and have had some damage to your underlying health status, that might negatively impact your ability to earn a living, let’s say, because it affects your work capacity, or it gives you some sort of a disability that makes it difficult to achieve the labor market outcomes that you were hoping to achieve. And that loss of income, in turn, can prevent you from being able to access quality health care later on, or can otherwise compromise your nutrition, or any number of other things, right. It can make it so that you can only afford to live in localities that maybe are high pollution or have other poor quality housing. And so there’s this feedback loop between the effects on income and the effects on health. And the same thing, obviously, for if you’re negatively affected by a downturn, is that that can compromise your health, of course, directly in the short-term, right. So there’s evidence for instance, that recessions in general improve health on net, but there’s also some evidence that shows that job loss experiences are incredibly stressful periods, raising rates of suicide rates of other risky or otherwise dangerous health behaviors. So the income loss can directly affect your health in the short run. It can also affect it in the long run, through your earning capacity and vice versa. So that’s this kind of dangerous mutually reinforcing situation we find ourselves in with any health or economic shock.

ORLOWSKI

What are some of the policies or actions that society can take to try and head off this sort of long-term economic and long-term health damage?

ARTHI

You know, one of the reasons why some of the effects of in utero exposure to crises are so pernicious is because the earlier in life you experienced some of these adverse or positive interventions, the longer shadow they have. So based aspects of biology and the way that these kinds of investments or harms compound, it’s just the case that most impeccable evidence seems to point to the idea that investments closer in time to an adverse shock are much more likely to be cost-effective in remediating that shock, or even potentially preventing it from taking root. So with this in mind, and with some strong evidence from the historical record that shows the possibility of pretty substantial long-run adverse impacts, it would seem to be the case that efforts that could be taken to support the incomes of people who are facing income loss right now could be quite important to stave off some of these worst effects.

They might be able to prevent people from taking jobs that would lead to skilled appreciation. It might enable people to maintain good access to healthcare, nutrition for children who otherwise might suffer from the loss of income at the household level. It might allow people to seek out better healthcare who become sick with COVID-19 and thankfully survive, but then are faced with, what do I do about this potential penalty that I’m going to carry with me for some period of time? There’s a strong argument to be made for the class effectiveness of any of these types of interventions that could take place now, as opposed to waiting 20 or 30 years for some of these effects to become really big and salient. So I think the thing that’s important to consider is that there might be quite obvious adverse health effects or adverse economic effects that kind of persist, but there’s also likely to be a number of these effects that are latent for a period of time.

So you may not realize just yet how badly you’ve been damaged, either in your career or in terms of your underlying health stock. But these effects might manifest as you grow older, so 20 or 30 years later. This is certainly what we see in the 1918 type of literature, is these effects with disability and so on that tend to crop up much later in life. And at that point, they’re not only detrimental to the individual person who’s suffering these effects, whose work capacity is diminished or who is ill and needs access to care. But they’re also very costly to society in general. These are adverse effects that especially if they’ve compounded unnoticed over the course of 30, 40 years, end up being very burdensome on healthcare systems, on welfare systems, end up costing the entire economy in terms of lost productivity of workers, and of course are just bad for wellbeing and equity. So I think these are all arguments for us to take very seriously now, recognizing of course that, rightfully so, people have been very focused on mortality and how bad that is and how salient it is and how much we need to be trying to stop these issues. But I think a possible oversight thus far has been the way that we’re not out of the woods, just when we get people to survive COVID-19 infection, or we’re not out of the woods if a particular person didn’t lose their job because they’re still in this economy, which is in a downturn. And so I think trying to identify potential problem areas now that may not seem as pressing, but which have high returns to action now would be a place to start, and may save us a lot of suffering and a lot of economic costs down the line.

ORLOWSKI

Well, Professor Arthi, thank you for joining me today on the UCI Podcast.

ARTHI

Thank you so much.