In the framework of this research webinar co-organised by the CEPII and T3M, Professor Giancarlo Corsetti will present the findings of his recent paper "Social Distancing and Supply Disruptions in a Pandemic" co-authored with Martin Bodenstein, Economist and Luca Guerrieri, Economists at the Board of Governors of the Federal Reserve System.
Authors integrate an epidemiological model, augmented with contact and mobility analyses, with a two-sector macroeconomic model, to assess the economic costs of labour supply disruptions in a pandemic. The model is designed to capture key characteristics of the U.S. Input-Output Tables and a core sector that produces intermediate inputs not easily replaceable by the other sector, subject to minimum-scale requirements. Using epidemiological and mobility data to inform our exercises, authors show that the reduction in labour services due to the observed social distancing (spontaneous and mandatory) can explain up to 6-8% of the roughly 12% U.S. GDP contraction in the second quarter of 2020. Public measures designed to protect workers in core industries and occupations with tasks that cannot be performed from home, can flatten the epidemiological curve at reduced economic costs—and contain vulnerabilities to supply disruptions vis-a-vis a new surge of infections. Using state-level data for the United States, the research provides econometric evidence that spontaneous social distancing was no less costly than mandated social distancing.