Influence of Social Distancing on the Economy

According to the Organization for Economic Cooperation and Development

(OECD), under a double-hit scenario of the COVID-19, the real Gross Domestic Product

(GDP) in 2020 of G20 and OECD is predicted to decrease by 7.3 percent and 9.3 percent,

respectively (13). Social distancing is a supposed solution for preventing the COVID-19, and

aged people are recommended to avoid physical contact with others. Unfortunately, social

distancing policies are currently harming economic activities, as illustrated by the statistics

mentioned earlier. Certain businesses such as tourism, transport, and cultural activities have

to shut down, and the number of bankruptcies surges due to social distancing. Besides, sales

of products with elastic demand like luxuries have collapsed while those of necessities with

inelastic demand remained high (OECD 312). These economic consequences represent

merely the tip of the iceberg of the implementation of global social distancing in just a few

months. Thus, it is clear that social distancing produces negative impacts on the economy in

both the short and the long run by hurting businesses, increasing unemployment rate, and

exacerbating economic inequality.

To start with, social distancing negatively impacts businesses that heavily depend on

face-to-face interactions. Due to social distancing, workers may confront difficulties in

communicating with other workers to divide their labor, which would lead to a decrease in

labor productivity and an increase in production costs. Hence, some sectors that highly

demand face-to-face interactions between workers, such as hospitals, accommodation, and

the motion picture and sound recording industries, would require more than 20 percent wage

subsidies (Koren and Peto 11). With an inefficient division of labor corresponding to a

shortage of communication, the companies would not be able to undergo the stage of

increasing marginal returns, in which marginal product, which is the additional output

generated by additional workers, rises and total output increases at an increasing rate, because
the specialization of labor should accompany this stage. Thus, businesses with workers who

could not efficiently divide the labor will experience economic losses and will ultimately

require wage subsidies. Furthermore, industries that require customer contacts, such as retail

trade, arts and entertainment, and food services, will experience severe financial crises

because of social distancing (Koren and Peto 10). For instance, under social distancing

policies, many customers would not be willing to partake of foods in restaurants, which

depend on active interactions with customers, as the demand for foods in restaurants is highly

elastic. The prolonged economic crisis resulting from social distancing would cause

businesses to eventually confront bankruptcy. Therefore, social distancing policies would

lead businesses based on either teamwork or interactions with consumers to endure high

economic losses and, in some cases, bankruptcy.

Moreover, social distancing plays a significant role in producing devastating effects

on the labor market in the long run. Studies have shown that 60 percent of the realized 12

percent decline in the employment rate from January to April in the United States during the

COVID-19 outbreak could be attributed to the states’ social distancing policies. (Gupta 24).

In other words, the COVID-19 itself caused only 40 percent of the increase in the

unemployment rate, and social distancing policies enacted to prevent the spread of COVID-

19 were the main reason for the high unemployment rate during the global economic crisis. In

particular, workers with a lack of education, limited health care, and low levels of liquid

assets are highly subject to job losses (Mongey 15). For instance, workers who did not

receive college-level education would have a higher probability of losing jobs than those with

a college degree. If social distancing persists for an extended period, workers who are already

economically vulnerable will encounter job losses, and there is a low possibility for them to

find new jobs in the future. In addition, the unemployment rate among people in the low-

income groups will continue to soar, enhancing the economic inequality in society. Therefore,
in the long run, social distancing would lead to a skyrocketed unemployment rate.

On top of the drawbacks mentioned above, social distancing ultimately leads to

higher economic inequality. After a two-month lockdown and a partial closure of six months,

the Gini coefficient, a statistical measurement of the income distribution, would increase by

8.5 percent in overall Europe, indicating that the total inequality would significantly increase

due to social distancing (Palomino 217). Notably, the inequality component within a country

would increase by 5.04 percent on average, and that between countries would surge by

approximately 2.44 percent in Europe (Palomino 216). If both the economic inequality within

a country and that between countries worsen continuously, the likelihood of reversing the

already-widened gap in the future would be significantly low. Even worse, school closures

and online education corresponding to social distancing led children suffering from poverty

to have limited access to education. For example, a child from a family who receives SNAP

benefits (food stamps) has 15 percent less possibility to have access to high-quality Internet

and 9 percent more possibility of having no Internet access at all (Sen 2). Due to the

discrimination of education, children from low-income families who have limited access to

high-speed Internet would underperform relative to other children from the high-income

families who live in regions with a higher Internet diffusion, and they are likely to become

less-educated workers, facing a high possibility of job losses. In short, social distancing

results in a continuing exacerbation of economic inequality within a country and between

countries in the long run.

To sum up, social distancing carries negative impacts on the global economy in the

long run. First, businesses that put high importance on interactions would need to endure the

decrease in productive efficiency. Second, the employment rate would decrease significantly,

especially for workers who are already economically inferior. Third, the gap between the rich

and the poor will aggravate at a higher rate due to social distancing. Indeed, social distancing
is an effective solution for COVID-19 and may bring some benefits to society. A team led by

an economist Linda Thunstrom asserted that economic benefits of lives saved through social

distancing would exceed the current GDP losses by $5.2 trillion (3). However, the economic

losses due to business shutdowns, soaring unemployment rate, and heightened social

inequality via social distancing would outweigh the benefits the saved lives would bring. As

mentioned above, limited access to education would cause children to underperform on tests

and face unemployment in the long run. If the society remains in social distancing for an

extended time to prevent the spread of COVID-19, even industries that are currently less

affected, such as agriculture, forestry, fishing, and hunting, will also suffer from economic

losses with intensified social distancing policies. Therefore, governments must enact

appropriate policies to solve the short-run and long-run economic problems mentioned above.
 Works Cited

Gupta, Sumedha, et al. “Effects of Social Distancing Policy on Labor Market Outcomes.”

NBER Working Paper, no. 22780, May 2020, doi: 10.3386/w27280.

Koren, Miklos and Rita Peto. “Business Disruptions from Social Distancing.” arXiv: General

Economics, 31 Mar. 2020, arxiv.org/abs/2003.13983. Accessed 11 Jun. 2020.

Mongey, Simon, et al. “Which Workers Bear the Burden of Social Distancing Policies?”

NBER Working Paper, no. 27085, May 2020, doi: 10.3386/w27085.

OECD. “OECD Economic Outlook., Volume 2020 Issue 1.” OECD Economic Outlook, no.

107, Jun. 2020, doi: 10.1787/0d1d1e2e-en.

Palomino, Juan C., et al. “Wage Inequality and Poverty Effects of Lockdown and Social

Distancing in Europe.” Covid Economics: Vetted and Real-Time Papers, vol. 25, no. 8,

CEPR Press, 3 Jun. 2020, pp. 186-229.

Sen, Anaya and Catherine E. Tucker. “Social Distancing and School Closures: Documenting

Disparity in Internet Access among School Children.” SSRN Electronic Journal, 2020,

doi: 10.2139/ssrn.3572922.

Thunstrom, Linda, et al. “The Benefits and Costs of Using Social Distancing to Flatten the

Curve for COVID-19.” Journal of Benefit-Cost Analysis, Cambridge University Press,

28 Apr. 2020, pp. 1-17.