Covid-19 macro effects could last 40 years – research

Pandemics result in “significant macroeconomic” after-effects that could persist for 40 years, according to a new paper from the University of California.

Authors Oscar Jorda, Sanjay Singh and Alan Taylor study the rate of return on assets focusing on 12 major pandemics in which more than 100,000 people died. As a comparison they also study major wars resulting in the same death toll.

“Following a pandemic, the natural rate of interest declines for decades thereafter, reaching its nadir about 20 years later, with the natural rate about 2% lower had the pandemic not taken place,” the authors note.

At around the four-decade mark, the natural rate returns to the pre-pandemic level.

The authors note that a key difference between past pandemics and the Covid-19 outbreak is that past pandemics occurred at times when virtually no one survived to old age. In past pandemic episodes, real wages increased until about three decades after the pandemic.

This is because pandemics induced labour scarcity and pushed real wages up. Given increases in life expectancy and advances in health care, this impact is expected to be muted for coronavirus, the authors say.