new study questions covid-19 economic policies

A report just issued by the Becker Friedman Institute for Economics at the University of Chicago is suggesting that recent federal responses to the COVID-19 outbreak may prolong the nation’s eventual economic recovery.

The report, Covid-19 Is Also a Reallocation Shock, raises the possibility of a “drawn-out economic recovery from COVID-19 shock, even if the pandemic is largely controlled within a few months.”

The reasons for a protracted recovery, says the report, will be partly due to “unemployment benefit levels that exceed earnings” under the Coronavirus, Aid, Relief, and Economic Security Act,” as well as “policies that subsidize employee retention irrespective of the employer’s longer term outlook.”

“If the pandemic and partial shutdown linger, the economic recovery will be delayed,” says the report.

“Thus, the future course of the pandemic and containment efforts could lead to a delayed or sluggish recovery,” it continues, adding: “If global pandemics with serious health consequences become an oft-recurring phenomenon, they will undercut growth for many years.”

Balancing that prospect with a more optimistic scenario, the report also acknowledges that the global economy could come back “over the next 2-3 months without serious setbacks,” providing that the epidemic shows signs of receding in the next several weeks, COVID-19 treatments improve, and the prospects of a vaccine appear available.

But the report warns that generous unemployment benefits may have the effect of discouraging “many unemployed persons from returning to work before August.”

The report also urges a loosening of both land use restrictions and occupational licensing, arguing that both processes today could significantly limit a return to a strong economy.

The report notes that in the 1950s only 5 percent of U.S. workers needed to have a license to do their jobs, but that that figure has risen to 25 percent in the last decade.

There are now “onerous licensing requirements for barbers, manicurists, tree trimmers, funeral attendants, massage therapists, auctioneers, sign language interpreters, and hundreds of other jobs.”
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Such licensing seems likely to increase in the wake of the virus, a trend that the report regards as negatively impacting a post-COVID-19 economic recovery.

​By Garry Boulard

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