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Socio-Economic Impacts of COVID-19 on Household Consumption and Poverty

Author

Listed:
  • Amory Martin
  • Maryia Markhvida
  • St'ephane Hallegatte
  • Brian Walsh

Abstract

The COVID-19 pandemic has caused a massive economic shock across the world due to business interruptions and shutdowns from social-distancing measures. To evaluate the socio-economic impact of COVID-19 on individuals, a micro-economic model is developed to estimate the direct impact of distancing on household income, savings, consumption, and poverty. The model assumes two periods: a crisis period during which some individuals experience a drop in income and can use their precautionary savings to maintain consumption; and a recovery period, when households save to replenish their depleted savings to pre-crisis level. The San Francisco Bay Area is used as a case study, and the impacts of a lockdown are quantified, accounting for the effects of unemployment insurance (UI) and the CARES Act federal stimulus. Assuming a shelter-in-place period of three months, the poverty rate would temporarily increase from 17.1% to 25.9% in the Bay Area in the absence of social protection, and the lowest income earners would suffer the most in relative terms. If fully implemented, the combination of UI and CARES could keep the increase in poverty close to zero, and reduce the average recovery time, for individuals who suffer an income loss, from 11.8 to 6.7 months. However, the severity of the economic impact is spatially heterogeneous, and certain communities are more affected than the average and could take more than a year to recover. Overall, this model is a first step in quantifying the household-level impacts of COVID-19 at a regional scale. This study can be extended to explore the impact of indirect macroeconomic effects, the role of uncertainty in households' decision-making and the potential effect of simultaneous exogenous shocks (e.g., natural disasters).

Suggested Citation

  • Amory Martin & Maryia Markhvida & St'ephane Hallegatte & Brian Walsh, 2020. "Socio-Economic Impacts of COVID-19 on Household Consumption and Poverty," Papers 2005.05945, arXiv.org.
    • Handle: RePEc:arx:papers:2005.05945
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    References listed on IDEAS

    as
    1. Scott R Baker & Robert A Farrokhnia & Steffen Meyer & Michaela Pagel & Constantine Yannelis & Jeffrey Pontiff, 0. "How Does Household Spending Respond to an Epidemic? Consumption during the 2020 COVID-19 Pandemic," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 834-862.
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    4. Brian Walsh & Stéphane Hallegatte, 2020. "Measuring Natural Risks in the Philippines: Socioeconomic Resilience and Wellbeing Losses," Economics of Disasters and Climate Change, Springer, vol. 4(2), pages 249-293, July.
    5. Coibion, Olivier & Gorodnichenko, Yuriy & Weber, Michael, 2025. "The cost of the COVID-19 crisis: Lockdowns, macroeconomic expectations, and consumer spending," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).
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