Michael Stepner (University of Toronto), "The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data"

"The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data"

Michael Stepner (University of Toronto)
with Raj Chetty, John N. Friedman, Nathaniel Hendren, and the Opportunity Insights Team

September 23, 2022, 3:30 to 5:00 PM
Leacock 429

Host: Erin Strumpf
Field: Health

Abstract:
We build a publicly available database that tracks economic activity at a granular level in real time using anonymized data from private companies. We report weekly statistics on consumer spending, business revenues, job postings, and employment rates disaggregated by county, sector, and income group. Using the public available data, we study how COVID-19 affected the economy by analyzing heterogeneity in its impacts across subgroups. We first show that high-income individuals reduced spending sharply in March 2020, particularly in sectors that require in-person interaction. This reduction in spending greatly reduced the revenues of small businesses in affluent, dense areas. Those businesses laid off many of their employees, leading to widespread job losses especially among low-wage workers in such areas. High-wage workers experienced a “V-shaped” recession that lasted a few weeks, whereas low-wage workers experienced much larger, more persistent job losses. Even though consumer spending and job postings had recovered fully by December 2021, employment rates in low-wage jobs remained lower in areas that were initially hard hit, indicating that the job losses due to the demand shock led to a persistent reduction in labor supply. Building on this diagnostic analysis, we evaluate the impacts of fiscal stimulus policies designed to stem the downward spiral in economic activity. Using an event-study design, we show that cash stimulus payments led to sharp increases in spending early in the pandemic, but much smaller responses later in the pandemic, especially for high-income households. Real-time estimates of marginal propensities to consume provided better forecasts of the impacts of subsequent rounds of stimulus payments than historical estimates. Perhaps because of the substantial expansion in government support, consumer spending remained high even in low-income areas where many workers lost their jobs. Overall, our findings suggest that fiscal policies can stem secondary declines in consumer spending and job losses, but do not have the capacity to restore full employment when the initial shock to consumer spending arises from health concerns. Furthermore, even after health concerns have abated, changes in labor supply among those who lost their jobs may lead to persistent reductions in employment. More broadly, our analysis demonstrates how public statistics constructed from private sector data can support many research and real-time policy analyses, providing a new tool for empirical macroeconomics.