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The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S. Greg Kaplan Ben Moll Gianluca Violante IESR Virtual Seminar September 2020 Objectives US policy response to COVID-19: Lockdown: workplace

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SLIDE 1

The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S.

Greg Kaplan Ben Moll Gianluca Violante IESR Virtual Seminar September 2020

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SLIDE 2

Objectives

  • US policy response to COVID-19:
  • Lockdown: workplace and social sector
  • Stimulus: CARES Act
  • Goal: quantify trade-offs
  • Aggregate: Lives versus livelihoods
  • Distributional: Who bears the economic costs?
  • Approach: distributional Pandemic Possibility Frontier (PPF)
  • Compare policies without taking stand on economic value of life
  • Seek policies that flatten and shift the frontier

1 Kaplan, Moll and Violante (2020)

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SLIDE 3

Methodology

  • Integrated SIR + Heterogeneous Agent model with necessary ingredients
  • Goods: (i) regular; (ii) social; (iii) home production
  • Types of labor: (i) workplace; (ii) remote; (iii) home production
  • Occupation heterogeneity: (i) flexibility; (ii) social intensity; (iii) essentiality
  • Two-wayfeedback: between virus and economic activity
  • Economic exposure to pandemic correlated with financial vulnerability
  • Calibrate model to U.S. economy and examine counterfactuals
  • Laissez-faire vs lockdown vs fiscal policy (CARES Act)
  • Smarter policies: (i) targeted lockdowns; (ii) Pigouvian taxes

2 Kaplan, Moll and Violante (2020)

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SLIDE 4

Main Findings

  • 1. Economic welfare costs of pandemic: large and heterogeneous, regardless of lockdown
  • Large welfare costs for middle of earnings distribution: fiscal stimulus
  • Large welfare costs for rigid, social-intensive occupations
  • 2. Slope of PPF varies with length lockdown
  • Driven by ICU constraint and eventual arrival of vaccine
  • Reconcile conflicting views on extent of trade-off
  • 3. US CARES Act:
  • Reduced economic cost by 20% on average, highly redistributive
  • Explains rapid recovery in consumption of poor hosueholds
  • 4. Targeted lockdowns and taxation-based alternatives: more favorable average trade-off, but

more dispersion

→ dimensions not considering today 3 Kaplan, Moll and Violante (2020)

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SLIDE 5

Outline

  • 1. Model
  • 2. Parameterization
  • 3. Results
  • 4. Conlusions
  • 5. Linked Slides
  • 6. Additional Slides

3 Kaplan, Moll and Violante (2020)

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SLIDE 6

Epidemiological Model

  • St: susceptible
  • It: infectious
  • Rt: recovered
  • Et: exposed = latent virus, not yet infectious
  • Ct: critical = in ICU, may ultimately die

Two key features:

  • 1. Death probability of

’s depends on max ICU capacity 2. : infections depend on social , workplace

4 Kaplan, Moll and Violante (2020)

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SLIDE 7

Epidemiological Model

  • St: susceptible
  • It: infectious
  • Rt: recovered
  • Et: exposed = latent virus, not yet infectious
  • Ct: critical = in ICU, may ultimately die

      ˙ St ˙ Et ˙ It ˙ Ct ˙ Rt       =       −βt

It Nt

βt

It Nt

−λE λE −λI λIχ λI(1 − χ) −λC λC(1 − P(Ct, Cmax)) λR −λR      

T 

     St Et It Ct Rt       Two key features:

  • 1. Death probability of Ct’s depends on Ct ≷ max ICU capacity Cmax
  • 2. βt = β(Cst, Lwt, t): infections depend on social C, workplace L

4 Kaplan, Moll and Violante (2020)

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SLIDE 8

Occupations

High Flexibility Low Flexibility High intensity in C Software engineer, architect Car mechanic, miner High intensity in S Event planner, social scientist Waiter, shop assistant Essential Police, nurse, supermarket clerk

  • 1. Flexibility: substitutability between remote and workplace hours

Effective labor supply =

  • 2. Employment intensities in social versus regular sectors ,
  • 3. Essential occupations: not affected by workplace lockdown

5 Kaplan, Moll and Violante (2020)

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SLIDE 9

Occupations

High Flexibility Low Flexibility High intensity in C Software engineer, architect Car mechanic, miner High intensity in S Event planner, social scientist Waiter, shop assistant Essential Police, nurse, supermarket clerk

  • 1. Flexibility: substitutability between remote and workplace hours
  • Effective labor supply = Lj

w + ϕjLj r

  • 2. Employment intensities in social versus regular sectors , (ξj

s, ξj c)

Yi = ZiNαi

i K1−αi i

, Ni =  

J

∑

j=1

( ξj

i

) 1

σ (

Nj

i

) σ−1

σ

 

σ σ−1

, i ∈ {s, c}

  • 3. Essential occupations: not affected by workplace lockdown

5 Kaplan, Moll and Violante (2020)

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SLIDE 10

Households

  • Period utility:

U[c, υs( ˙ D)s, h] − V [υℓ( ˙ D)ℓw, ℓr, h]

  • c: regular consumption
  • s: social consumption
  • ℓw: workplace hours
  • ℓr: remote hours
  • h: home production
  • υs, υℓ: disutility of infection risk

Budget constraint of healthy household working in occupation : liquid assets : illiquid assets : flexibility of occupation : transaction cost Sick households (= , in ICU): cannot produce, gov’t provides and

6 Kaplan, Moll and Violante (2020)

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SLIDE 11

Households

  • Period utility:

U[c, υs( ˙ D)s, h] − V [υℓ( ˙ D)ℓw, ℓr, h]

  • c: regular consumption
  • s: social consumption
  • ℓw: workplace hours
  • ℓr: remote hours
  • h: home production
  • υs, υℓ: disutility of infection risk
  • Budget constraint of healthy household working in occupation j

˙ b = (1 − τ)w jz ( ℓw + ϕjℓr ) + r bb + T − c − pss − d − χ(d, a) ˙ a = r aa + d

  • b: liquid assets
  • a: illiquid assets
  • ϕj ∈ [0, 1]: flexibility of occupation j
  • χ: transaction cost
  • Sick households (= C, in ICU): cannot produce, gov’t provides c and s

6 Kaplan, Moll and Violante (2020)

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SLIDE 12

Lockdowns

  • 1. Social sector lockdown: Mandated decrease in capital utilization in s sector

Ys = Zs(κsKs)αsN1−αs

s

, κs < 1

  • 2. Workplace lockdown: Mandated maximum share of workplace hours

Full lockdown: Such lockdowns reduce infections because Note: lockdowns affect same behavioral margins as epidemic

7 Kaplan, Moll and Violante (2020)

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SLIDE 13

Lockdowns

  • 1. Social sector lockdown: Mandated decrease in capital utilization in s sector

Ys = Zs(κsKs)αsN1−αs

s

, κs < 1

  • 2. Workplace lockdown: Mandated maximum share of workplace hours

ℓw ≤ κℓ(ℓw + ℓr), κℓ < 1 Full lockdown: Such lockdowns reduce infections because Note: lockdowns affect same behavioral margins as epidemic

7 Kaplan, Moll and Violante (2020)

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SLIDE 14

Lockdowns

  • 1. Social sector lockdown: Mandated decrease in capital utilization in s sector

Ys = Zs(κsKs)αsN1−αs

s

, κs < 1

  • 2. Workplace lockdown: Mandated maximum share of workplace hours

ℓw ≤ κℓ(ℓw + ℓr), κℓ < 1

  • Full lockdown: κs = κℓ = 0
  • Such lockdowns reduce infections because βt = β(Cst, Lwt, t)
  • Note: lockdowns affect same behavioral margins as epidemic

7 Kaplan, Moll and Violante (2020)

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SLIDE 15

Remaining Model Ingredients

Firms

  • Monopolistic intermediate-good producers → final s,c goods
  • Baseline: flexible prices, extension: sticky prices

Investment Fund

  • Illiquid assets = shares of an investment fund
  • The fund owns K and intermediate producers in c, s sectors

Government

  • Issues liquid debt (Bg), spends (G), taxes and transfers (T)
  • Central bank absorbs the additional debt needed to finance CARES Act

→ market clearing conditions 8 Kaplan, Moll and Violante (2020)

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SLIDE 16

Outline

  • 1. Model
  • 2. Parameterization
  • 3. Results
  • 4. Conlusions
  • 5. Linked Slides
  • 6. Additional Slides

8 Kaplan, Moll and Violante (2020)

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SLIDE 17

Key Aspects of Parameterization

  • 1. Epidemiological block
  • SEIR parameters: epidemiological and clinical studies

→ SEIR parameters

  • 2. Occupational parameters
  • Flexibility measures by occupation: O*NET
  • Sectoral employment intensities in C and S: OES, CPS
  • Earnings and liquid wealth by occupation: SIPP

, CPS, SCF

→ exposure vs vulneability

  • 3. Two-way feedback: virus ↔ economic activity
  • Economic activity → virus: drop in R0 after lockdown

→ feedback 1

  • Virus → economic activity: VSL literature

→ feedback 2 9 Kaplan, Moll and Violante (2020)

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SLIDE 18

Outline

  • 1. Model
  • 2. Parameterization
  • 3. Results
  • 4. Conlusions
  • 5. Linked Slides
  • 6. Additional Slides

9 Kaplan, Moll and Violante (2020)

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SLIDE 19

Laissez-faire vs Lockdown Dynamics

Apr Jul Oct 2021 Apr Jul 0.00 0.02 0.04 0.06 0.08 0.10 0.12

(a) Monthly Death Rate (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul 50 40 30 20 10

(c) Labor Income (CF: C-intensive, Flexible) (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul

Month

50 40 30 20 10

(e) Labor Income (SF: S-intensive, Flexible) (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul 25 20 15 10 5

(b) Output (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul 50 40 30 20 10

(d) Labor Income (CR: C-intensive, Rigid) (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul

Month

50 40 30 20 10

(f) Labor Income (SR: S-intensive, Rigid) (%)

Laissez-faire Full Lockdown

  • Lockdown → second wave, but fewer deaths
  • Lockdown → longer, deeper contraction and W-shaped recovery

→ lockdown path → laissez-faire dynamics → lockdown dynamics → lockdown decomposition 10 Kaplan, Moll and Violante (2020)

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SLIDE 20

Laissez-faire vs Lockdown Dynamics

Apr Jul Oct 2021 Apr Jul 0.00 0.02 0.04 0.06 0.08 0.10 0.12

(a) Monthly Death Rate (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul 50 40 30 20 10

(c) Labor Income (CF: C-intensive, Flexible) (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul

Month

50 40 30 20 10

(e) Labor Income (SF: S-intensive, Flexible) (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul 25 20 15 10 5

(b) Output (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul 50 40 30 20 10

(d) Labor Income (CR: C-intensive, Rigid) (%)

Laissez-faire Full Lockdown

Apr Jul Oct 2021 Apr Jul

Month

50 40 30 20 10

(f) Labor Income (SR: S-intensive, Rigid) (%)

Laissez-faire Full Lockdown

  • Large drop in income for S-intensive occupations even in laissez faire
  • Lockdown → further drop in income for C-intensive occupations

→ lockdown path → laissez-faire dynamics → lockdown dynamics → lockdown decomposition 10 Kaplan, Moll and Violante (2020)

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SLIDE 21

Pandemic Possibility Frontier (PPF)

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40

Deaths (% of Population)

2 4 6 8 10

Economic Welfare Cost (Multiples of Monthly Income)

Laissez-faire US Lockdown 12-Month Lockdown 1 7

  • M
  • n

t h L

  • c

k d

  • w

n

Mean p25-p75 p10-p90 p5-p95 → ppf by occupation 11 Kaplan, Moll and Violante (2020)

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SLIDE 22

Distribution of Economic Welfare Costs

  • link to PPF by occupation

12 Kaplan, Moll and Violante (2020)

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SLIDE 23

CARES Act Shifts the PPF

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35

Deaths (% of Population)

2 4 6 8 10

Economic Welfare Cost (Multiples of Monthly Income)

US Lockdown L a i s s e z

  • f

a i r e US Policy 1 7

  • M
  • n

t h L

  • c

k d

  • w

n 12-Month Lockdown Mean w/o Fiscal Support p10-p90 w/o Fiscal Support Mean w/ Fiscal Support p10-p90 w/ Fiscal Support

  • CARES Act: stimulus checks, pandemic UI, PPP

, retirement withdrawals [LINK TO DETAILS]

→ CARES Act dynamics → components of CARES Act → CARES Act by income quartile → components of CARES Act by income quartile 13 Kaplan, Moll and Violante (2020)

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SLIDE 24

Consumption Dynamics

Apr Jul Oct 2021 Apr Jul

Month

30 20 10

(a) Labor Income (%)

Bottom Quartile 2nd Quartile 3rd Quartile Top Quartile

Apr Jul Oct 2021 Apr Jul

Month

20 15 10 5

(b) Consumption (%)

Bottom Quartile 2nd Quartile 3rd Quartile Top Quartile

  • US Data: biggest income drops, but fastest consumption recovery at bottom [LINK TO

SLIDE]

  • CARES Act redistributed toward low-income households with high MPC [LINK TO

components of fiscal stimulus]

14 Kaplan, Moll and Violante (2020)

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SLIDE 25

Smarter Alternative Polices

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 2 4 6 8 10

(a) Comparison

Mean: US Lockdown Mean: Lockdown w/ C Sector Exempted Mean: Social Consumption Tax Mean: Workplace Hours Tax

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 2 4 6 8 10

Laissez-faire 17-Month 12-Month 21-Month 2-Month

(b) Lockdown w/ C Sector Exempted

Mean p10-p90 p25-p75

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35

Deaths (% of Population)

2 4 6 8 10

Laissez-faire 17-Month 12-Month 21-Month 2-Month

(c) Social Consumption Tax

Mean p10-p90 p25-p75

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35

Deaths (% of Population)

2 4 6 8 10

Laissez-faire 17-Month 12-Month 21-Month 2-Month

(d) Workplace Hours Tax

Mean p10-p90 p25-p75

15 Kaplan, Moll and Violante (2020)

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SLIDE 26

Outline

  • 1. Model
  • 2. Parameterization
  • 3. Results
  • 4. Conlusions
  • 5. Linked Slides
  • 6. Additional Slides

15 Kaplan, Moll and Violante (2020)

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SLIDE 27

Summary [TO BE EDITED]

  • 1. Laissez-faire has different distributional implications than lockdown
  • 2. Slope of health-wealth tradeoff far from uniform (b/c of ICU & vaccine)
  • 3. Social lockdown effective in curtailing epidemic w/o large economic costs
  • 4. Liquidity matters: the most exposed households are also the most vulnerable and, hence,

in need social insurance

  • 5. Fiscal policy has reduced welfare losses without worsening death count
  • 6. Consumption of poor has recovered faster because of fiscal stimulus

THANKS!

16 Kaplan, Moll and Violante (2020)

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SLIDE 28

Summary [TO BE EDITED]

  • 1. Laissez-faire has different distributional implications than lockdown
  • 2. Slope of health-wealth tradeoff far from uniform (b/c of ICU & vaccine)
  • 3. Social lockdown effective in curtailing epidemic w/o large economic costs
  • 4. Liquidity matters: the most exposed households are also the most vulnerable and, hence,

in need social insurance

  • 5. Fiscal policy has reduced welfare losses without worsening death count
  • 6. Consumption of poor has recovered faster because of fiscal stimulus

THANKS!

16 Kaplan, Moll and Violante (2020)

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SLIDE 29

Outline

  • 1. Model
  • 2. Parameterization
  • 3. Results
  • 4. Conlusions
  • 5. Linked Slides
  • 6. Additional Slides

16 Kaplan, Moll and Violante (2020)

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SLIDE 30

Some Dimensions we Abstract From

  • 1. Differential impact of the epidemic across age groups

(Glover-Heathcote-Krueger-RiosRull, Bairoliya-Imrohoroglu, Brotherhood-Kircher-Santos-Tertilt, ...)

  • 2. Differential impacts of the epidemic across gender

(Alon-Doepke-Olmstead Rumsey-Tertilt, ...)

  • 3. Impact of the epidemic on deaths from other causes
  • 4. Input-output linkages in production

(Baqaee-Farhi, ...)

  • 5. Firm balance sheets, liquidity provision to firms

(Buera-Fattal Jaef-Neumeyer-Shin, Elenev-Landvoigt-VanNieuwerburgh, ...)

  • 6. Costly destruction of viable employment relationships
  • 7. ...

→ model ingredients 17 Kaplan, Moll and Violante (2020)

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SLIDE 31

Market Clearing Conditions

  • Regular goods market

Yc = Cc + I + G + χ

  • Social goods market

Ys = Cs

  • Labor market for each occupation

Nj

c + Nj s =

∫ z(ℓj

w(h, a, b, z) + ϕjℓj r(h, a, b, z))dµ,

j = 1, ..., 5

  • Liquid asset market

Bh = Bg

  • Illiquid asset market

A = Vfund(K, Θc, Θs), K = Kc + Ks

→ model ingredients 18 Kaplan, Moll and Violante (2020)

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SLIDE 32

Epidemiological Parameters

Description Parameter Value Initial basic reproduction number Rinit = βinit

0 /λI

2.5 Final basic reproduction number Rend = βend /λI 2

  • Avg. duration of Infectious

TI ⇒ λI = 1/TI 4.3 days

  • Avg. duration of Exposure (latency)

TE ⇒ λE = 1/TE 5.0 days Infection fatality rate IFR = χδC 0.02 × 0.33 = 0.066

  • Time trend in transmissions (masks,...): ˜

Rt = (1 − ωt)R0 + ωt ¯ R, ¯ R = 1.5, ωt = logistic

  • Herd immunity threshold: 1 − 1/Rinit

= 60%

  • Vaccine arrival after 18 months

→ back to parameterization 19 Kaplan, Moll and Violante (2020)

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SLIDE 33

Occupations: Exposure vs Vulnerability

Occupation ϕj ξj

c

ξj

s

Empl Share Earnings Liq Wealth Essential 0.1 0.19 0.35 0.31 $45K $1,300 CF: C-intensive, Flexible 1 0.57 0.12 0.21 $79K $18,400 SF: S-intensive, Flexible 1 0.03 0.19 0.10 $51K $8,900 CR: C-intensive, Rigid 0.1 0.19 0.04 0.13 $45K $1,000 SR: S-intensive, Rigid 0.1 0.04 0.29 0.24 $32K $900 Source: O*NET, OES, SIPP

  • Estimate stochastic processes for household wage dynamics by occupation from PSID
  • To match liquid wealth we add occupational-specific wedge on liquid rate

→ back to parameterization 20 Kaplan, Moll and Violante (2020)

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SLIDE 34

Feedback: Economic Activity to Virus

  • Transmission rate for infections:

βt = ˜ βt (Cst ¯ Cs )νs

β (Lwt

¯ Lw )νw

β

  • Google COVID-19 Community Mobility Data:

Feb 18 Mar 03 Mar 17 Mar 31 Apr 14 Apr 28 Date 2020

  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 20 Workplace Mobility Index Over 90% of population in lockdown Feb 18 Mar 03 Mar 17 Mar 31 Apr 14 Apr 28 Date 2020

  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 20 Retail Mobility Index Over 90% of population in lockdown

  • Estimates of Rt drop from 2.5 to 0.8 after lockdown
  • Drop in acrivity of 50% ⇒ elasticities: νs

β = νw β = 0.8

→ back to parameterization 21 Kaplan, Moll and Violante (2020)

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SLIDE 35

Feedback: Virus to Economic Activity

  • Parameterize utility shifters as:

υℓ( ˙ D) = exp ( −ν0

ℓ ˙

Dν1

ℓ

) , υs( ˙ D) = exp ( −ν0

s ˙

Dν1

s

)

  • Maps into VSL calculations: optimality condition for hours worked is

log wit = γ0

ℓ

( ν0

ℓ ˙

D

ν1

ℓ

t

) + γ1

ℓ Xit

  • Used to estimate monetary compensation for fatality risk. Compensation is increasing and

concave in risk

Greenstone et al. (2014), Lavetti (2020)

  • Target VSL between $4-10M for fatality rates between 1/1,000 and 1/10,000 per quarter

(relevant magnitude for COVID-19)

→ back to parameterization 22 Kaplan, Moll and Violante (2020)

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SLIDE 36

Lockdown Scenario

Apr Jul Oct 2021 Apr Jul

Month

10 20 30 40 50 60

(a) Workplace Lockdown (%)

Apr Jul Oct 2021 Apr Jul

Month

20 40 60 80

(b) Social Sector Lockdown (%)

  • Calibrated to obtain decline in workplace and retail activity (Google)
  • Assumption: no future lockdown in case of 2nd wave

→ back 23 Kaplan, Moll and Violante (2020)

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SLIDE 37

Aggregates Dynamics: Laissez-Faire

Apr Jul Oct 2021 Apr Jul Month 0.0 0.5 1.0 1.5 2.0 2.5

(a) Reproduction Number

R0 Effective R Apr Jul Oct 2021 Apr Jul Month 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

(b) Infectious (% of Population)

Apr Jul Oct 2021 Apr Jul Month 0.000 0.025 0.050 0.075 0.100 0.125 0.150 0.175 0.200

(c) Monthly Death Rate (%)

Actual No ICU Constraint Apr Jul Oct 2021 Apr Jul Month 50 40 30 20 10

(d) Output (%)

Y Regular Y Social Y Apr Jul Oct 2021 Apr Jul Month 50 40 30 20 10 10

(e) Consumption (%)

C Regular C Social C Apr Jul Oct 2021 Apr Jul Month 20 15 10 5 5 10

(f) Investment and Share Price (%)

Investment Share Price Apr Jul Oct 2021 Apr Jul Month 100 80 60 40 20 20 40 60

(g) Hours (%)

Workplace Hrs. Home Hrs. Apr Jul Oct 2021 Apr Jul Month 30 20 10 10 20

(h) Labor (%)

Labor Productivity Labor Income Apr Jul Oct 2021 Apr Jul Month 2.35 2.40 2.45 2.50 2.55 2.60 2.65 2.70

(i) Government Debt

Quarterly GDP 600 400 200 200 400 Remote Hrs.

→ back 24 Kaplan, Moll and Violante (2020)

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SLIDE 38

Aggregates Dynamics: Lockdown

Apr Jul Oct 2021 Apr Jul Month 0.0 0.5 1.0 1.5 2.0 2.5

(a) Reproduction Number

R0 Effective R Apr Jul Oct 2021 Apr Jul Month 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

(b) Infectious (% of Population)

Apr Jul Oct 2021 Apr Jul Month 0.000 0.025 0.050 0.075 0.100 0.125 0.150 0.175 0.200

(c) Monthly Death Rate (%)

Actual No ICU Constraint Apr Jul Oct 2021 Apr Jul Month 50 40 30 20 10

(d) Output (%)

Y Regular Y Social Y Apr Jul Oct 2021 Apr Jul Month 50 40 30 20 10 10

(e) Consumption (%)

C Regular C Social C Apr Jul Oct 2021 Apr Jul Month 20 15 10 5 5 10

(f) Investment and Share Price (%)

Investment Share Price Apr Jul Oct 2021 Apr Jul Month 100 80 60 40 20 20 40 60

(g) Hours (%)

Workplace Hrs. Home Hrs. Apr Jul Oct 2021 Apr Jul Month 30 20 10 10 20

(h) Labor (%)

Labor Productivity Labor Income Apr Jul Oct 2021 Apr Jul Month 2.35 2.40 2.45 2.50 2.55 2.60 2.65 2.70

(i) Government Debt

Quarterly GDP 600 400 200 200 400 Remote Hrs.

→ back 25 Kaplan, Moll and Violante (2020)

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SLIDE 39

Lockdown Decomposition

Apr Jul Oct 2021 Apr Jul 0.00 0.02 0.04 0.06 0.08 0.10 0.12

(a) Monthly Death Rate (%)

Laissez-faire Full Lockdown Social Sector Lockdown Workplace Lockdown

Apr Jul Oct 2021 Apr Jul 50 40 30 20 10

(b) Labor Income (CF: C-intensive, Flexible) (%)

Laissez-faire Full Lockdown Social Sector Lockdown Workplace Lockdown

Apr Jul Oct 2021 Apr Jul 50 40 30 20 10

(c) Labor Income (SF: S-intensive, Flexible) (%)

Laissez-faire Full Lockdown Social Sector Lockdown Workplace Lockdown

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5

(d) Output (%)

Laissez-faire Full Lockdown Social Sector Lockdown Workplace Lockdown

Apr Jul Oct 2021 Apr Jul

Month

50 40 30 20 10

(e) Labor Income (CR: C-intensive, Rigid) (%)

Laissez-faire Full Lockdown Social Sector Lockdown Workplace Lockdown

Apr Jul Oct 2021 Apr Jul

Month

50 40 30 20 10

(f) Labor Income (SR: S-intensive, Rigid) (%)

Laissez-faire Full Lockdown Social Sector Lockdown Workplace Lockdown

→ back 26 Kaplan, Moll and Violante (2020)

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SLIDE 40

Production Possibility Frontier by Occupation

→ back 27 Kaplan, Moll and Violante (2020)

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SLIDE 41

Aggregates Dynamics: Lockdown + CARES Act

Apr Jul Oct 2021 Apr Jul Month 0.0 0.5 1.0 1.5 2.0 2.5

(a) Reproduction Number

R0 Effective R Apr Jul Oct 2021 Apr Jul Month 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

(b) Infectious (% of Population)

Apr Jul Oct 2021 Apr Jul Month 0.000 0.025 0.050 0.075 0.100 0.125 0.150 0.175 0.200

(c) Monthly Death Rate (%)

Actual No ICU Constraint Apr Jul Oct 2021 Apr Jul Month 50 40 30 20 10

(d) Output (%)

Y Regular Y Social Y Apr Jul Oct 2021 Apr Jul Month 50 40 30 20 10 10

(e) Consumption (%)

C Regular C Social C Apr Jul Oct 2021 Apr Jul Month 20 15 10 5 5 10

(f) Investment and Share Price (%)

Investment Share Price Apr Jul Oct 2021 Apr Jul Month 100 80 60 40 20 20 40 60

(g) Hours (%)

Workplace Hrs. Home Hrs. Apr Jul Oct 2021 Apr Jul Month 30 20 10 10 20

(h) Labor (%)

Labor Productivity Labor Income Apr Jul Oct 2021 Apr Jul Month 2.35 2.40 2.45 2.50 2.55 2.60 2.65 2.70

(i) Government Debt

Quarterly GDP 600 400 200 200 400 Remote Hrs.

→ back 28 Kaplan, Moll and Violante (2020)

slide-42
SLIDE 42

Decomposition of CARES Act Components

Apr Jul Oct 2021 Apr Jul 0.0 0.5 1.0 1.5 2.0 2.5

(a) Effective R

No CARES Check + UI Full CARES

Apr Jul Oct 2021 Apr Jul 30 25 20 15 10 5 5

(b) Labor Income (%)

No CARES Check + UI Full CARES

Apr Jul Oct 2021 Apr Jul 60 50 40 30 20 10

(c) Workplace Hours (%)

No CARES Check + UI Full CARES

Apr Jul Oct 2021 Apr Jul

Month

0.000 0.005 0.010 0.015 0.020 0.025 0.030

(d) Monthly Death Rate (%)

No CARES Check + UI Full CARES

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5

(e) Consumption (%)

No CARES Check + UI Full CARES

Apr Jul Oct 2021 Apr Jul

Month

4 3 2 1 1

(f) Share Price (%)

No CARES Check + UI Full CARES

→ back 29 Kaplan, Moll and Violante (2020)

slide-43
SLIDE 43

CARES Act by Income Quartile

Apr Jul Oct 2021 Apr Jul 40 30 20 10 10

Full CARES

(a) Labor Income (%)

Bottom Quartile Top Quartile

Apr Jul Oct 2021 Apr Jul 20 20 40 60 80 100

(b) Total Income (%)

Bottom Quartile Top Quartile

Apr Jul Oct 2021 Apr Jul 25 20 15 10 5 5

(c) Consumption (%)

Bottom Quartile Top Quartile

Apr Jul Oct 2021 Apr Jul

Month

40 30 20 10 10

No CARES

(d) Labor Income (%)

Bottom Quartile Top Quartile

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5

(e) Total Income (%)

Bottom Quartile Top Quartile

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5 5

(f) Consumption (%)

Bottom Quartile Top Quartile

→ back 30 Kaplan, Moll and Violante (2020)

slide-44
SLIDE 44

Decomposition of CARES Act Components by Income Quartile

Apr Jul Oct 2021 Apr Jul 40 30 20 10

Bottom Quartile

(a) Labor Income (%)

Apr Jul Oct 2021 Apr Jul 20 20 40 60 80 100

(b) Total Income (%)

None Check UI Withdraw PPP Full

Apr Jul Oct 2021 Apr Jul 25 20 15 10 5 5

(c) Consumption (%)

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5 5

Top Quartile

(d) Labor Income (%)

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5 5

(e) Total Income (%)

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5 5

(f) Consumption (%) → back 31 Kaplan, Moll and Violante (2020)

slide-45
SLIDE 45

Consumption across income distribution: empirics

−20 −10 10 20 30 Year over Year Percent Change 2019m4 2019m7 2019m10 2020m1 2020m4

Personal Consumption Expenditures Personal Savings Rate

  • Source: Cox-Ganong-Noel-Vavra-Wong-Farrell-Greig
  • Consumption of poor recovers faster than consumption of rich

32 Kaplan, Moll and Violante (2020)

slide-46
SLIDE 46

Modeling CARES Act

Apr Jul Oct 2021 Apr Jul

Month

0.0 0.5 1.0 1.5 2.0 2.5 3.0

(a) Transfers (% of Quarterly GDP)

Check UI

Apr Jul Oct 2021 Apr Jul

Month

10 20 30 40 50

(b) PPP Subsidies (%)

Wage Profit

Apr Jul Oct 2021 Apr Jul

Month

25 20 15 10 5

(c) Withdrawal Cost (%)

  • Checks = unconditional transfer of $1,800 to everyone
  • Pandemic UI = replacement earnings loss by decile (Ganong-Vavra)
  • Paycheck Protection Program = part wage & profit subsidies
  • 401(k) withdrawals up to $100,000 = decline in withdrawal cost

33 Kaplan, Moll and Violante (2020)

slide-47
SLIDE 47

Outline

  • 1. Model
  • 2. Parameterization
  • 3. Results
  • 4. Conlusions
  • 5. Linked Slides
  • 6. Additional Slides

33 Kaplan, Moll and Violante (2020)

slide-48
SLIDE 48

Occupations: measures of flexibility

  • ONET: Tasks that can be performed at home (Dingel-Neiman)
  • ATUS Q: As part of your (main) job, can you work at home?
  • Systematic variation across 3-digit SOC occupations

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 ATUS (share of individuals who can work from home) 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 O*NET (share of teleworkable jobs)

  • Model: two flexibility levels
  • Define high flexibility occupation if ONET share > 0.5.

34 Kaplan, Moll and Violante (2020)

slide-49
SLIDE 49

Occupations: employment intensities in c, s sectors

Classify 3-digit NAICS industries as “regular” (c) or “social” (s)

Sector C (VA share: 0.74) Sector S (VA share: 0.26) Agriculture, fishing, and hunting Retail trade Mining Air, rail, water and transit transportation Utilities Educational services Construction Health care and social assist. services Manufacturing Rental and leasing services Wholesale trade Arts and entertainment services Postal, pipeline and truck transp. Accommodation and food services Warehousing and storage Personal services Information Finance and insurance Real estate Professional and business services Source: BEA

35 Kaplan, Moll and Violante (2020)

slide-50
SLIDE 50

Strategy to classify occupations

  • 1. Start from 430 3-digit occupations from OES
  • 2. Identify essential ones

(Source: Brookings)

  • 3. Rank non-essential ones by O*NET flexibility index (high, low)
  • 4. Then rank them independently by rel. intensity in c vs s (high, low)
  • 5. End up with 5 occupational groups
  • 6. Compute average earnings and liquid wealth holdings from SIPP

36 Kaplan, Moll and Violante (2020)

slide-51
SLIDE 51

Pandemic scenarios through lens of model

  • 1. Laissez-faire = counterfactual without public health or fiscal policy
  • 2. Lockdown only = counterfactual without fiscal policy
  • 3. Lockdown + fiscal policy = “actual” US scenario

Assumption: vaccine arrives after 24 months and is distributed rapidly

37 Kaplan, Moll and Violante (2020)