This transcript is taken from an interview conducted April 9, 2020.
How much work can continue during COVID-19?
To understand the short-term hit to the US economy, it’s important to know what work is going to look like during this period of social distancing. The most basic question you might want to know is, how many people can work from home? Or, how many people won’t be able to work if they can’t leave their home to go to a workplace? For answers, Chicago Booth’s Jonathan Dingel and I looked at a number of survey questions administered by O*NET, a database of occupation-specific facts covering more than 1,000 jobs in the US economy, sponsored by the Department of Labor. The survey questions describe various characteristics of given occupations, for example: Do you operate heavy machinery? Do you have to run during a typical day to conduct your job?
On the basis of these survey responses, we classified given occupations as those that could be done entirely from home versus those that couldn’t be. Police officers and firefighters, for instance, can’t really do their jobs from home. The same is true for dentists, machine operators, commercial drivers, and certain kinds of workers who need to be physically active. Waiters can’t really do their jobs from home.
By contrast, for financial professionals and a lot of service workers, it’s not a big deal to do the job from home. Dingel and I estimate that 37 percent of all jobs in the United States can be done from home. And it’s worth noting that this is a much larger percentage of jobs than were done entirely from home before the COVID-19 crisis.
This leaves a large set of workers who can’t work from home. That’s scary and problematic, and it suggests there’s going to be a severe economic hit from strong social-distancing measures put in place to combat the health effects of the virus.
If countries’ exchange rates weakened relative to the US dollar, their real debt loads would go up. The risk that debt crises will ensue has clearly increased.
Those jobs that can be done from home typically are higher paid than those jobs that can’t be. They represent 46 percent of all wages earned in the US economy. Of course, there are a lot of elements that make it really difficult to map from our estimates to a forecast of GDP. One thing that’s important to note is that there’s been a big demand shock associated with this crisis.
Furthermore, we have not evaluated the efficacy and productivity of jobs performed at home as a result of social distancing. It might be that various jobs can be done at home, but they’re done less productively, for a variety of reasons. While we think our number is helpful, more work would have to be done to translate it into an assessment of what the actual hit to the economy will be from strong forms of social distancing.
What differences do you see across cities and countries?
Behind those aggregate statistics, there’s a lot of heterogeneity across cities and across industries. For instance, in some cities, such as San Francisco, a large share of workers could continue their work even under strong forms of social distancing. In other places, such as Las Vegas or Bakersfield, California, it’s going to be much more difficult. This is important because the effects of this crisis are going to hit unevenly across households and regions, cities and industries. We hope that providing these statistics might be useful as policy makers target aid to those regions and occupations and industries and people that most need it.
The heterogeneity that we describe exists not only across US cities, but across countries. Our research underscores that poor countries and emerging markets typically have an even lower share of jobs that can be performed at home, making it a greater challenge to keep workers going in those places.
I also worry that companies in emerging markets, which have borrowed to a large extent in US dollars in the run-up to the crisis, could be vulnerable if their economic performance is hurt severely. If countries’ exchange rates weakened relative to the US dollar, their real debt loads would go up. The risk that debt crises will ensue has clearly increased.
Together with my coresearchers—Harvard’s Antonio Coppola, Stanford’s Mateo Maggiori, and Columbia’s Jesse Schreger—I studied how large emerging markets, such as China or Brazil, have increasingly issued bonds and accessed foreign capital through offshore affiliates. For example, a company in Brazil or in China might set up an affiliate or a subsidiary in the Cayman Islands, and that affiliate might be the entity that issues, for instance, a bond that has been purchased by an American.
What issues could hinder an international economic recovery?
How many people can work from home?
If, in fact, there is a situation where corporate bonds are defaulting and the world faces a stark economic crisis, the resolution of these bad loans is made more complicated by the fact that the issuance pattern involves many jurisdictions—one for the investor, one for the issuer, and one for the ultimate parent company. Relatedly, the initial description of the US bailout package exempted certain companies that we might think of as US companies but that are in fact headquartered in other countries. Since offshore financing in tax havens is a bigger deal today than it was several decades ago, this is one area that we need to keep an eye on.
All of our attention right now is, and should be, on containing the public-health crisis, doing what we can to save lives and to stop the spread of the virus and the disease. I fully support this approach. But hopefully sooner rather than later, we will move beyond the phase where we’ve got strong forms of social distancing. At that point, the world is going to face severe economic challenges.
What will the aftermath of COVID-19 mean for global trade?
The last time you saw a large global trade collapse was in 2008 and 2009, associated with the global financial crisis. There are some reasons to believe that, at least in the long run, the implications of this recent crisis might be just as big, if not much bigger and more lasting, in terms of international trade.
Why might international trade collapse in the aftermath of the crisis? First, it might be that it takes a while for demand for durable goods, which are the most intensively traded, to pop back up. My previous research—done together with Penn State’s Jonathan Eaton, Yale’s Sam Kortum, and University of Sydney’s John Romalis—documented that declining demand for intensely traded goods was in fact the key factor behind the trade collapse in 2009. But this time around, there may additionally be concern about traveling and finding suppliers face-to-face—doing some of the things that lead to trade ties between countries.
Further, even before the COVID-19 crisis, many countries had instituted protectionist measures. Together with Harvard’s Alberto Cavallo and Gita Gopinath and the Boston Fed’s Jenny Tang, I’ve been working on understanding the impact of import tariffs placed by the US on goods from around the world and the retaliatory response by other countries. These policies already put a dent in global trade flows. Now we additionally see export restrictions put in place, though thus far they’ve predominantly applied to medical gear and related items.
In response to COVID-19, we may well change the way we do business, and our technological ability to meet people and find suppliers and integrate our supply chains without physically going anywhere may increase quite substantially. But in the short to medium run, there’s the concern that trade could potentially dry up, and this could be compounded by the prevailing protectionist sentiment. And if countries come out of the COVID-19 crisis at different times, there might even be concern about doing business across certain borders.