key: cord-0841355-2q758flu authors: Chen, Simiao; Prettner, Klaus; Kuhn, Michael; Bloom, David E. title: The economic burden of COVID-19 in the United States: Estimates and projections under an infection-based herd immunity approach date: 2021-05-29 journal: J Econ Ageing DOI: 10.1016/j.jeoa.2021.100328 sha: f13a92250181cba63e0a65253f681dd716cc82d4 doc_id: 841355 cord_uid: 2q758flu OBJECTIVES: To assess the economic burden of COVID-19 that would arise absent behavioral or policy responses under the herd immunity approach in the United States and compare it to total burden that also accounts for estimates of the value of lives lost. METHODS: We use the trajectories of age-specific human and physical capital in the production process to calculate output changes based on a human capital–augmented production function. We also calculate the total burden that results when including the value of lives lost as calculated from mortality rates of COVID-19 and estimates for the value of a statistical life in the United States based on studies assessing individual’s willingness to avoid risks. RESULTS: Our results indicate that the GDP loss associated with unmitigated COVID-19 would amount to a cumulative US$1.4 trillion by 2030 assuming that 60 percent of the population is infected over three years. This is equivalent to around 7.7 percent of GDP in 2019 (in constant 2010 US$) or an average tax on yearly output of 0.6 percent. After applying the value of a statistical life to account for the value of lives lost, our analyses show that the total burden can mount to between US$17 to 94 trillion over the next decade, which is equivalent to an annual tax burden between 8 and 43 percent. CONCLUSION: Our results show that the Unite States would incur a sizeable burden if it adopted a non-interventionist herd immunity approach. FUNDING: Research reported in this paper was supported by the Alexander von Humboldt Foundation, the Bill & Melinda Gates Foundation (Project INV-006261), and the Sino-German Center for Research Promotion (Project C-0048), which is funded by the German Research Foundation (DFG) and the National Natural Science Foundation of China (NSFC). The statements made and views expressed are solely the responsibility of the authors. In late 2019, severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), which causes the 64 coronavirus disease 2019 , emerged in the city of Wuhan in China. (Wang, Horby, Hayden, & 65 Gao, 2020) The virus then rapidly spread to almost all countries in the world. Millions of people have been 66 infected since then, many of them were hospitalized, and more than 2.7 million people worldwide were 67 , these approaches 90 typically feature simplified production functions, where output is produced only by labor under constant 91 returns to scale technology and the age structure of the workforce is usually not considered. While these 92 are justified simplifications that make these complex models with many different behavioral channels and 93 general equilibrium repercussions more manageable, these assumptions prevent a deeper understanding of 94 (i) nonlinearities when larger parts of the population fall ill, (ii) longer-term effects through changes in 95 capital accumulation, and (iii) the age-structure-dependent effects of COVID-19 that are associated with a 96 much higher mortality of individuals beyond the prime working ages. 97 Our contribution aims to complement the results of SIR-amended macroeconomic models by establishing 99 the economic burden of COVID-19 absent behavioral and policy responses, accounting for the age-and 100 human capital-specific effects of COVID-19 on the workforce and the effects of treatment costs on capital 101 accumulation. In doing so, we apply the health-augmented macroeconomic model (HMM), which is based 102 on a human-capital augmented production function that we have co-developed and applied previously to 103 estimate the economic burden of noncommunicable diseases, of diseases due to smoking or air pollution, 104 and of road accidents. ( We are considering a counterfactual scenario in which behavioral reactions of individuals and policy 113 responses are absent. This scenario allows us to establish a nonintervention benchmark against which to 114 assess the "stakes" of policymaking. The benchmark can be understood as a conservative estimate of the 115 total burden associated with the disease if the U.S. follows a strategy of achieving herd immunity through there might be spillover effects of infections that our framework does not capture. 125 The crucial lesson of our paper is that even our estimate of the economic burden of COVID-19 is sizeable 126 and strongly supports investing in health care infrastructure, early disease surveillance, and the delivery of 127 treatments and vaccines to prevent or contain potential future epidemics at an early stage. When we consider 128 the value of lives lost in addition to the gross domestic product (GDP) loss, the total burden of COVID-19 129 increases substantially, which only strengthens our conclusion. 130 Model description and data sources 132 A pandemic affects the economy in the long run via the following direct channels: (i) disease-specific and 133 age-dependent mortality reduces labor supply and therefore human capital. The extent to which it does so 134 depends on the age structure of those who die because of the disease. (ii) Disease-and age-specific 135 morbidity also reduces individual labor supply, but recovery usually follows such that the morbidity effects 136 are not permanent. This hinges on the assumption that recovery is full, which might not be the case for all 137 patients in reality (Carfì, Bernabei, & Landi, 2020) . To account for this possibility, we include an additional 138 scenario with long-term morbidity in our projections; (iii) Treatment is costly and can be paid for in two 139 ways. First, by reducing consumption-which is tantamount to reallocating expenditures toward healthcare 140 and, as such, does not affect GDP-and, second, by reducing savings/investment, which reduces capital 141 accumulation and therefore future output. 142 To capture these channels and to allow for a certain degree of substitutability among workers and between 144 workers and physical capital, we consider an economy in which aggregate output (GDP) is produced 145 according to the production function 146 where refers to total factor productivity; denotes the physical capital stock used in production; is 148 the elasticity of output with respect to physical capital; and , is aggregate human 149 capital, which is the product of age-specific labor supply, , , age-specific human capital, ℎ , , and age-150 specific productivity (e.g., as determined by morbidity), , , summed from the age of labor market entry 151 Hollingsworth, 2020) and that for those who enjoy a full recovery the process takes an average of 14 161 days,(World Health Organization, 2020) which is also the time span of a quarantine in many countries. 162 In a closed economy without a government, aggregate output equals aggregate income. Output/income can 164 be consumed or saved such that the aggregate capital accumulation equation is given by 165 where and are aggregate treatment costs and aggregate consumption, respectively; is the saving rate, 167 which, in the underlying Solow (1956) (Solow, 1956 ) framework for a closed economy, is tantamount to 168 the gross investment rate; and is the rate at which physical capital depreciates. For the parameters, we However, vaccination is a behavioral/policy response to the pandemic from which we abstract deliberately. 272 Even if we were to consider vaccination, vaccines may be delayed in terms of development, testing, 273 manufacture, or delivery, they may confer imperfect protection, or their acceptance may be too low among 274 the population to stop the pandemic. Second, how long immunity lasts after recovery remains unclear. If 275 immunity is long lasting, the pandemic will likely die out. If, by contrast, immunity is short lived, the Finally, we did not consider the loss from pain and sufferings. 317 Our results indicate that implementing the so-called herd immunity approach, as suggested by the Great 319 Barrington Declaration, would lead to a sizeable economic burden, which increases further when 320 accounting for lives lost. In the latter case, we arrive at values of about 1.6 to 5.9 the 16 trillion US$ loss 321 estimated by Cutler and Summers (2020) on their assumptions on the disease dynamics, particularly that 322 the pandemic will be substantially contained by the fall of 2021. ( on the macroeconomic burden of COVID-19 mortality and morbidity and its treatment costs, we abstract 364 from these types of complications. However, adopting these frameworks to account for health and in 365 particular for infectious diseases is a challenging but interesting avenue for further research. A multi-risk SIR model with optimally targeted Ziauddeen, H. 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