Study reveals the economic costs of behavioral responses to COVID-19 pandemic in the U.S.

Reviewed by Emily Henderson, B.Sc.Dec 7 2021

Throughout its unsteady course, the COVID-19 pandemic has altered the behavior of businesses and households. Those behavioral changes, intensified by government actions like mandatory closures, have had a reverberating impact on the U.S. economy.

A new study led Adam Rose, research professor at University of Southern California's Price School of Public Policy, analyzes the economic impacts of specific behavioral responses such as closures, re-openings, workplace avoidance, and a reduction in entertainment activities, as well as federal government stimulus packages. He will present the study, "The Impact of COVID-19 on the U.S. Economy: The Role of Avoidance Behavior and Resilience," during the Society for Risk Analysis Virtual Annual Meeting, Dec. 5-9 in Washington, DC.

The analysis tracked the broader economic ramifications of individual responses of producers and consumers through domestic supply-chain interactions and international trade linkages between the U.S. and other regions. This method allowed the researchers to trace the ripple effects of direct behavioral responses to the pandemic, including resilience (telework and deferred spending) and avoidance behavior (relating to public transportation, mass gatherings, and in-person shopping).

Businesses and households changed their behavior greatly in response to the pandemic and some of those will linger throughout the recovery."

Adam Rose, Research Professor, University of Southern California's Price School of Public Policy

Here are some of the most significant findings:

• The largest economic losses were associated with mandatory closure and slow reopening of businesses, followed by avoidance of the workplace and other activities by households. These two factors accounted for declines in real GDP of 26.1 percent and 12.2 percent, respectively, in the first six months following the U.S. outbreak.
• Behavioral avoidance resulted in a decrease in activity of 40 percent to 65 percent across six domains, including air travel, local public transportation, shopping, dining out, events with large crowds, and recreation.
• Pent-up demand was found to be a significant factor in the recovery process, raising semi-annual growth by 6.9 percent above the baseline recovery trend by the end of 2023.
• Early rounds of fiscal policy stimulus packages were found to raise semi-annual GDP by a total of 8.9 percent by the second half of 2020. The overall beneficial effects of later rounds were hampered by such factors as businesses having to repay loans.

The researchers have developed an analytical framework that can be used not only to estimate economic consequences of pandemics, but other types of disasters, Rose adds. "The results can be used by policymakers to fine-tune countermeasures relating to aspects of a broad range of disasters, including mandatory business closures, stay-at-home orders, health policy, and stimulus packages."