How to contain COVID-19 flare-ups without crushing the economy

Brett Nelson | Nov 17, 2020

Sections Economics Public Policy

Collections COVID-19 Crisis

As the virus that causes COVID-19 continues to spread, global policy makers face a multitrillion-dollar question: How can we contain it without a fresh round of broad lockdowns? One promising solution has been local lockdowns, suggests research by University of Nottingham’s John Gathergood and Chicago Booth PhD candidate Benedict Guttman-Kenney, which finds that they are less damaging to the economy than uniform national shutdowns.

In March 2020, after the pandemic struck, UK prime minister Boris Johnson ordered a lockdown for England, which shut shops, restaurants, and pubs and limited travel except for essential work and grocery runs. By contrast, local lockdowns, implemented later after the national lockdown had been lifted, aimed to restrict personal interactions without hampering overall commerce—for example, by keeping restaurants open but having patrons dine outside and only in small groups. Each household had to keep to itself as well. “You couldn’t invite your neighbor ’round for tea,” says Guttman-Kenney.

Unlike the national lockdown, local lockdowns—also orchestrated by the national government—went into effect in different places and at different times, depending on the rise in cases. By September, about one in four people in the United Kingdom was subject to a local lockdown, according to the researchers, who find that these lockdowns slowed the spread of the virus while allowing the economy to chug along.

“In contrast to the large spending declines observed in March 2020, we do not find large spending declines in response to these local lockdowns,” the researchers write. “Instead, we find little (if any) decline in local spending—and any declines appear to be temporary.” 

The researchers combined COVID-19 case reports with spending figures provided by Fable Data, an information provider that records hundreds of millions of credit-card transactions and checking-account flows. Those data—tracked by postal code and available in real-time —are highly correlated with official aggregated statistics published months later, and the faster availability of useful information gives policy makers valuable time to make adjustments.

The variation in timing of the local lockdowns allowed the researchers to estimate their impacts. Gathergood and Guttman-Kenney compared prelockdown and postlockdown spending patterns and virus-transmission rates in nearby cities that saw similar trends leading up to their respective lockdowns. The analysis involved 13 city pairs, though the main focus was a comparison of Manchester (which locked down on July 30) and Liverpool (which didn’t lock down until September 18). The Manchester lockdown “has a large sample, Liverpool offers a good control and the case is particularly informative for considering a potential London lockdown,” the researchers note.

If local lockdowns had had a chilling economic effect, Manchester’s postlockdown consumption would have dropped significantly relative to Liverpool’s consumption during the same period. Instead, the researchers find, the difference in the change of consumption was minimal. While the national lockdown led consumption to fall 40 percent, the researchers find little decline resulting from local lockdowns.

Moreover, the latter appear to have had a positive effect on containing the virus. Though cases continued to rise after a lockdown announcement (as expected, given the disease’s incubation period), case numbers then leveled off or declined, the researchers observe. 

One caveat to relying on local lockdowns is the need for a better-coordinated national testing effort to isolate new cases and mitigate any spread. An autumn spike prompted the UK government in late October to announce a three-tier containment strategy, and regions with higher infection rates face tougher restrictions. These new lockdowns are more widespread and intrusive than earlier, warns Guttman-Kenney, and the incidence of cases is higher and rising more quickly than before.