Section 4: The costs of lockdowns
Measurement issues for the costs of lockdowns are different from those
that make the assessment of the benefits difficult, but they are also
significant. While some of the costs are clear and immediate (GDP is
lower, the fiscal deficit is higher, unemployment has risen a great
deal) even here it is not straightforward to judge their true scale of
cost because of two issues: a. how permanent will the losses be? b. how
great would such problems have been even with no lockdown? Costs which
will come further down the road because of disruption to healthcare and
education are harder again to measure relative to the more immediate
effects on economic production and employment.
A great deal of evidence is already emerging on the (narrow) economic
impacts of restrictions. Estimates made by Deb et al (2020) (12) to
identify the particular effect of restrictive policies (lockdown)
suggest that they reduced economic activity by 15% in the 30 days after
they were adopted. They find that stay-at-home requirements and
workplace closures are the costliest in economic terms. Preliminary
estimates from the UK Office for National Statistics showed a slightly
more than 20% fall in GDP in April 2020, the first full month after the
lockdown. Bonadio et al (2020) (13) put the impact on output and incomes
(i.e. GDP) of policies to counter the spread of the infection on GDP
averaged across 64 countries even higher, at around 30%.
Aum et al (2020) (14) estimate that around one-half of all job losses in
the UK and US can be attributed to lockdowns. Coibion et al (2020, a)
(15) estimate that there were 20 million lost jobs in the US by April
8th triggered overwhelmingly by government
restrictions, far more than jobs lost over the entire Great Recession.
Furthermore, many of those losing jobs were not actively looking to find
new ones. Participation in the labour force declined by 7 percentage
points, an unparalleled fall that dwarfs the three percentage point
cumulative decline that occurred from 2008 to 2016 after the financial
crisis. In a related paper the same authors undertake surveys of
behaviour and economic outcomes across US regions with different degrees
of restrictions. They conclude:
“We observe a dramatic decline in employment and consumer
spending as well as a bleak outlook for the next few years. Our
estimates suggest that this economic catastrophe can be largely
accounted by lockdowns.” (16)
Around 9 million people (one-quarter of the workforce) have been furloughed in the UK and paid largely by the government. The OBR reported in May that UK net government debt rose by 17.4 per cent of GDP on a year earlier to 97.7 per cent in April. Extra debt issuance is likely to be around 10% of GDP in 2020 and the stock of debt likely to be already close to 100% of GDP in mid- 2020 and likely to go higher in 2021.
For the UK the Office for Budget Responsibility (OBR) and the Bank of
England estimate that GDP is likely to have fallen by between 25% and
35% in Q2 2020 and by 10-15% in 2020 relative to 2019; unemployment
may rise to around 10%. The OBR central estimate, and the illustrative
scenario for the Bank of England made in May 2020, is that in 2020 the
UK GDP will be around 13-14% lower than in 2019. The June Organisation
for Economic Cooperation and Development forecast is for an 11.5%
decline in UK output in 2020 and for output to remain lower in 2021 than
it was in 2019.
The estimates from the Bank of England and the OBR assume that
restrictions are eased after June and that effectively the lockdown is
then soon over; it seems plausible that their estimates of economic cost
are therefore estimates of the impact of the lockdown that has been in
place in the UK from March to June and not of a continuation of the
lockdown into the second half of 2020 and beyond. The OBR is explicit
about this; in describing their forecasts they note: “The table below
summarises the results of our three-month lockdown scenario where
economic activity would gradually return to normal over the subsequent
three months.” The Bank of England in its May economic assessment takes
a similar line: “Underlying the illustrative scenario for both the UK
and the rest of the world is an assumption that enforced social
distancing measures remain in place until early June and that they are
then lifted gradually over the following four months, until the end of
Q3”. In that illustrative scenario GDP in 2020 is 14% below the 2019
level (Table 1A, Bank of England May Monetary Policy Report) (17). But it is hard to be sure how these assessments would have been different with much less restrictive policies; economic activity would almost certainly have been lower, at least to some extent.
Many elements of the cost of the lockdown in the UK are not reflected at
all in current incomes, employment and GDP. Health costs – including
mental health – are not yet showing up in a measurable way. They are
likely to be large and long-lasting. Referrals for cancer investigations
were 70% down in April 2020 (18); there were hardly any follow-up
routine appointments for long term conditions in UK Primary Care between
mid-March 2020 and the beginning of June 2020; outpatient seen were 64%
down and elective admissions were 75% down (19); attended appointments
in General Practice were down 35% (19). The impact of the stress of the
‘Lockdown’ on anyone with a pre-existing mental health condition, let
alone the population as a whole, is yet to be determined.
The cost from disrupted education of children and students will be felt
over a horizon of many years, even decades.