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Estimating Pandemic Economic Costs for “Face-to-Face” Businesses

The article “Estimating Pandemic Economic Costs for “Face-to-Face” Businesses” first appeared on Alpha Architect Blog. See an excerpt below.

Business disruptions from social distancing

  • Miklós Koren and Rita Peto
  • Covid Economics, Center for Economic Policy Research
  • A version of this paper can be found here
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What are the research questions?

To describe the impact of social distancing, a theory of communication is developed and described comprehensively in this article. The focus is on the relative importance of worker interactions, the cost of those interactions and their impact on the size of wage subsidies intended as compensation for the disruption due to social distancing. The authors develop a model of communication whereby the cost of social distancing is dependent on the degree of the division of labor within sectors.  The parameters of the model are estimated using data from the Occupation Information Network (O*NET; National Center for O*NET Development 2020). The database contains descriptions on just under 1000 occupations across 8 dimensions.

  1. What are the economic effects of social distancing interventions in terms of wage subsidies?
  2. Which businesses are most affected by social distancing restrictions?

Why does it matter?

The work presented in this article sets the stage for several new avenues of research into the topic of business disruptions as a result of policies and practices that mandate social distancing: (1) the demand side of the economy in terms of the employment impact; (2) the interaction between sectors and regions; (3) the long run changes in businesses as they attempt to build resilience to pandemic shocks, especially in terms of how easily telecommunication will substitute for face-to-face communication.

The most important chart from the paper

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.

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