Social Science Research to Combat C19-Related Economic Fall-Out

April 14, 2020

A new study provides theory-based measures of the reliance of US businesses on human interaction, detailed by industry and geographic location. The results can help target fiscal assistance to businesses that are most disrupted by social distancing. 

Social distancing interventions can be effective against epidemics but are potentially detrimental to the economy. Businesses that rely heavily on face-to-face communication or close physical proximity when producing a product or providing a service are particularly vulnerable. To date, there has been no systematic evidence on the role of human interactions across different enterprises – and therefore no research into which might be most at risk of negative impact due to social distancing. 

New research by CEU Professor Miklos Koren and Rita Peto Research Fellow of KRTK (Research Center for Economics and Regional Studies) addresses this lack in Covid Economics, a peer-reviewed online journal of the Centre for Economic Policy Research. 

As stock indexes and initial U.S. unemployment claims indicate, the world economy is facing the sharpest contraction since the 2008 Great Recession. At a global level, economies worldwide are bracing for the impact of various social distancing and lockdown measures taken by governments to slow the spread of covid-19. 

Attempts to help businesses weather the economic effects of covid-19 include the provision of fiscal assistance to enterprises hurt by the coronavirus outbreak. As Koren and Pető show, to target fiscal assistance effectively, it is important to understand which businesses are impacted the most.  

Their research provides systematic estimates of how reliant each industry is on human interaction, combining data from a large-scale survey of workers and the census of businesses. For example, Koren and Peto find that, in the U.S., 49 million workers have jobs that rely heavily on face-to-face communication with coworkers or customers, or require close physical proximity to other workers.  

“Hotels, restaurants, retail stores suffer the most from social distancing measures, as more than 50% of their employees have jobs that require face-to-face communication,” notes Peto. “Business in these sectors would require about 20% wage subsidy for each of their workers.” 

“While some of the affected jobs can be done from home, this is disruptive for both the worker and the business,” says Professor Koren. “There is a reason that firms prefer large cities where face-to-face meetings between workers and customers are easier.” 

The March 2020 employment survey of the U.S. Bureau of Labor Statistics reflects early business contraction due to Covid 19Retail, hotels and restaurants, arts and entertainment and schools are the most affected sectors, and map directly those predicted by Koren and Peto.