Costs and Benefits of Closing Businesses in a Pandemic
41 Pages Posted: 13 May 2020 Last revised: 29 Jun 2020
Date Written: May 12, 2020
Typical government responses to pandemics involve social distancing measures designed to curb disease propagation. We evaluate the impact of state-mandated business closures in the context of the Covid-19 crisis in the US. Using state-level variations in the set of sectors forced to shut down, and within-state variations in local industry composition, we estimate the effects of business closures on infection and death rates. We find that locking down 10% of the labor force is associated with 0.017 and 0.0015 percentage points lower Covid-19 weekly infection and death rates. Business closures lead to significant declines in hours worked, and to large market value losses for affected firms. The findings translate into 29,000 saved lives for a cost of $169 billion.
Keywords: Covid-19, pandemic, business closures, non-essential businesses
JEL Classification: E32, I10, I18, H1
Suggested Citation: Suggested Citation