When — and How — Should the U.S. Economy Reopen?

As states across the U.S. experiment with lifting lockdowns in varying degrees, economists, policymakers and many others are struggling to find the right approaches to reopen the economy while putting safeguards in place to avoid a spike in new COVID-19 cases. How exactly things will play out remains largely uncertain – and the stakes couldn’t be higher.

Of the many challenges the pandemic has raised, “the most fundamental one is how much we are willing to pay, or more accurately lose, by shutting down the economy in order to save lives,” Wharton management professor Peter Cappelli wrote in an April 30 column in Human Resource Executive. “This sounds like a policy question, but it is also a practical management problem because employers are gearing up for the challenge of bringing employees back to work when we know that doing so and ending social isolation will increase the risk that more people will get sick and die.”

An analysis by the Penn Wharton Budget Model released on May 1 (and updated most recently on May 11) shows that as states relax their policies and residents reduce social distancing, jobs and GDP grow, but so does the number of COVID-19 cases and deaths — to alarming levels.

Using a simulator, the PWBM analysis shows that if states don’t reopen and social distancing behavior remains in place, total coronavirus-related deaths in the U.S. would be nearly 151,000 by July 15 (including deaths before the simulation began). Partial reopening would claim another 33,000 lives, while an additional 212,000 lives would be lost with full reopening, bringing total deaths to 363,000 by July 15. Further, if people see full reopening as a “return to normal” and ignore social distancing — going back to how they behaved, say, on February 1 — there would be nearly 715,000 deaths cumulatively by July 15. PWBM updates the simulator once a week and presents rolling two-month forecasts.

Not surprisingly, the economic outcomes in those scenarios run conversely, and the PWBM analysis narrows them down to specifics. Without states reopening, 6.1 million jobs would be lost between May 15 and July 15, but full reopening (with social distancing still in place) could bring a net gain of 11.5 million jobs. Between those two scenarios, GDP would change from minus 12.5% to minus 10.3%.

As of May 7, nearly 33 million Americans had filed claims for unemployment benefits in the seven weeks since the virus outbreak. The unemployment report the following day showed 20.5 million jobs lost in April, taking the unemployment rate to 14.7%, which The New York Times described as “literally off the charts.”

Beyond staggering unemployment, the pandemic promises to have other long-range consequences for those who keep their jobs. “Many employers that used to offer retirement plans (e.g., 401(k) plans) have cut their matches, thus making it less beneficial for workers to contribute,” said Olivia S. Mitchell, Wharton professor of business economics and public policy, and executive director of the Pension Research Council. “While this does conserve on cash, a major concern now, it also prejudices workers saving for old age.”

Another concern she pointed to was that coronavirus stimulus package approved by Congress allows employees to withdraw money from their retirement accounts due to COVID-19 stresses. “This too will erode retirement security in the future,” she said.

How to Reopen

In terms of the number of new cases — a key indicator — the outbreak in the U.S. is yet to peak and diminish, while it seems to be on a decline in Italy, Spain and Germany, according to Johns Hopkins University’s dashboard that tracks the spread of the virus.

“In Hong Kong … when the government started to relax, there was a lot of reduced social distancing at the personal level.” Kent Smetters

“The tortuous path that society and politicians have to consider walking is the fine line between allowing people to return to society — whether it’s to work or whether it’s to consume or whether it’s just to fraternize — versus the inevitable fact that the more people intermingle, the higher the chances that the virus will spread and the more deaths there will be,” said Wharton professor of health care management Mark Pauly. “That is the trade-off.”

A measure of caution for states before reopening is to achieve a “sustained reduction” over 14 days or so in the rate of new cases, according to Kevin Volpp, professor of medicine at the Perelman School of Medicine and professor of health care management at Wharton. That scenario assumes that there’s ample availability of testing, he said. Next, the new cases have to be reliably identified and isolated. The challenge, though, is that as many as half or more of people are asymptomatic but infectious, he noted. (Volpp talked about the challenges in reopening the U.S. economy with Wharton finance professor Jeremy Siegel on the Behind the Markets radio show on Sirius XM; you can listen to a podcast of the discussion here.)

Reopening needs to be staggered, avoiding high-risk settings such as movies and sporting events, said Pauly. It could begin with low-risk businesses, such as “a small neighborhood restaurant where we know the owners, and the chairs and tables are already widely separated.”

A “market-based solution” could also emerge, where people patronize establishments by the degree of risk they perceive in them, said Pauly. “More customers would come to a low-risk business than a high-risk business. More customers will come to a business that has successfully mitigated the risk compared to one that either didn’t or couldn’t successfully mitigate the risk.”

State-level relaxations on lockdowns could, of course, have unintended effects. “People may take that as a cue that maybe things are OK,” said Kent Smetters, Wharton professor of business economics and public policy and faculty director at PWBM, during a virtual presentation of its analysis last week. But the evidence here is mixed, he noted. “In Hong Kong, for example, when the government started to relax, there was a lot of reduced social distancing at the personal level. [However], we saw in other countries where even when the governments did not have a lot of relaxations or policy restrictions in the first place, people maintained their personal social distancing.”

Frustrated by the lockdowns, some people are willing to take more risks than others, and in the process they could endanger others. There are ways to mitigate those risks, either through insurance plans or by societal pressure, according to Pauly. “There should be some conditions under which you would be allowed to reenter society,” he said. “One is obvious. You should get a test and test negative. We shouldn’t let people enter into a normal course of life without a negative test.”

“Usually when people do things that impose risks on others, we make them pay for the privilege.” –Mark Pauly

Still, a negative test is “not bulletproof,” Pauly said, adding that a person could have picked up the virus 20 minutes earlier and not show symptoms. As a backstop, he said, individuals could also be required to pay for a permit, or something similar, to reenter society.

“Usually when people do things that impose risks on others, we make them pay for the privilege,” Pauly explained. The permit fees would also help “to raise funds to compensate people if you happened to infect them,” he added. Such a system would “be a way to confront people with the undeniable fact that if you reenter normal life, you’re going to potentially impose harm on your fellow human beings.”

Beyond Testing

With no vaccine on the immediate horizon, authorities can only rely on the three-pronged approach of testing, isolating and contact tracing to stem the pandemic. While testing is already taking place in varying degrees, the traditional public health approach of human contact tracing has “inherent limitations,” said Volpp.

With the enormous number of cases and the amounts of interaction between people, there is a need for a new type of “technology and human-based solution” for contact tracing that would work, Volpp said. However, obstacles to developing such a solution include “strong privacy laws and cultural beliefs around not wanting to share data,” he added. “How do we create a system that’s going to be both palatable to the American public and effective?

It would also be hard to obtain all the requisite data for such contact tracing, Volpp noted. After lockdowns are lifted, it would be “very difficult” to track the number of contacts made by those who use public transportation, walk through a crowded subway station, and then walk down a crowded street before they get to their office and interact with other people. If a public health authority were to ask such a person who may have developed symptoms to recall the contacts they had over the previous seven days, “it would be impossible,” he said.

“How do we create a system [for contact tracing] that’s going to be both palatable to the American public and effective?” –Kevin Volpp

Volpp noted that South Korea and Taiwan have successfully controlled the spread of the disease by systematically using cellphone data for contact tracing and requiring phone companies to provide that information to the government. In the U.S., though, privacy concerns will mean that participation by people who have been tested will be voluntary on an opt-in basis, he said.

“When you look at the rates of enrollment in various opt-in programs, typically it’s less than 10%,” Volpp continued. “If we have a technology-based tracking system which has 5% of the population enroll, it won’t be all that useful. We have to figure out how we’re going to set this up in such a way that we’re going to have a high proportion of people participating.”

Once a consensus is achieved on a technology platform for contact tracing, city and state governments, employers and other organizations have to find ways “to strongly encourage, incent, compel people to participate,” he said. “Those discussions haven’t quite happened yet, but that’s a very important consideration as we think about trying to reopen the economy.”

As for testing, setting realistic goals is a good starting point. True, the spread of the pandemic might be tamed if people are tested in large volumes. “[But] we don’t have the human or material capacity to test everyone at once,” said Wharton management professor Mauro Guillen.

Guillen identified three types of testing priorities: (1) healthcare personnel and first responders; (2) randomized testing of representative samples of the population to understand the overall pandemic dynamic; and (3) high-risk groups. He stressed that first-responders need to be prioritized for testing and for the necessary protective equipment.

Guillen also advised a staggered reopening of businesses with periodic checks before proceeding. He suggested an “incremental reopening,” with proper planning for transportation of people from home to work and back to the home. Alongside, there would have to be protocols in place for contact tracing if a worker falls ill, he said. In reopening schools, he recommended that children be taken to school in groups of 20% and step that up gradually while ensuring that the requisite testing and contact tracing capabilities are in place.

“Germany and South Korea … are testing, testing, testing, and then gradually reopening.” –Mauro Guillen

Social distancing must continue during transportation, at the workplace or in schools, and in residential areas, he said.

It is too early to identify a single country with the best model for reopening the economy, said Guillen. “[But] Germany and South Korea come to mind,” he said. “They are testing, testing, testing, and then gradually reopening.”

On the Work Front

In his column in Human Resource Executive, Cappelli noted that people in the U.S. and across the globe have been willing to isolate themselves, losing their income as well as their social contacts and interactions, in order to slow down the COVID-19 infection. He didn’t expect them to rush back to life as it was before the pandemic began. “The idea that after all this buy-in and social pressure to self-isolate, employees will happily return to their offices and workplaces is quite probably a mistake.”

How could the workplace be made safe for employees who return to work? “Making employees feel as though they are still doing social isolation probably helps – staying six feet apart, no big meetings (yay!), lots of sanitation, and so forth,” Cappelli wrote.

Many businesses are preparing to reopen with safeguards, such as temperature checks and social distancing restrictions, including Apple and Boeing. Apple is approaching the reopening cautiously, selecting only four of its 271 stores nationwide. Boeing has announced site monitoring and other measures such as voluntary checking of workers’ temperatures and staggered work schedules at its facilities.

“The first question is who will be required to return to work and whether logistically they can,” said Wharton management professor Iwan Barankay. People who have to take care of others or need to quarantine can get paid sick leave in most states from larger employers, but only for a week or so and only if they have accumulated enough eligibilities through their tenure at the firm, he pointed out. Smaller companies are typically not required to provide paid sick leave, he added.

“The first question is who will be required to return to work and whether logistically they can.” –Iwan Barankay

“For most professionals with children, the big reality that has not quite sunk in yet is that summer camps might not be available at all and even if they are, they might abruptly come to an end in case there are confirmed COVID-19 cases at such camps,” Barankay said. “So, the usual routine of being able to ship of the kids to camp and then dedicate yourself to work is not an option for most people this summer.”

According to Barankay, companies and their employees could find creative solutions, such as remote daycare and other programs to keep children engaged while adults are working. Firms might also be able to use grants from the Small Business Administration to fund paid sick leave for employees, he added. He pointed to Italy and Germany, where funds are made available for employers to provide additional paid sick leave and for childcare subsidies.

The ground realities may offer suboptimal solutions. Employees are legally entitled to a safe working environment, “but what if a company does not have the space and supplies to ensure it?” Barankay asked. “Some might prefer to not reopen for fear of legal consequences, and others might reopen in the hope that it will work somehow.”

According to Barankay, individual states need to provide clear guidelines on reopening businesses and not wait for federal guidelines to be announced. Such clarity is important also to ensure that employers can protect themselves legally, he said. “Just imagine the legal nightmare when someone can document that they were infected in the workplace or in case of death, and the claims that dependents will file.”

Given the considerable hurdles both employers and workers face, “it is easy to predict a decline in workforce productivity, which suggests that a sudden return to economic growth is not in the cards,” Barankay said. “Instead, it will be a slow and steady recovery with possible pauses when states experience sudden spikes in infection rates with an intermittent return to shelter-in-place orders…. Companies and states should take clear leadership here so that America can safely get back to work to avoid a prolonged economic depression.”

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