As governments and communities struggle to figure out the best way to deal with the novel coronavirus, a major concern is how to balance the risk to lives versus the risk to livelihoods. In short, how do we balance the public health versus economic consequences of this pandemic?
The answer comes from a widely used economic tool, and it is telling us that extreme measures are warranted.
It is difficult to get a sense of the direct and indirect economic impact of a human life — and it may seem callous to do so. But economists use a concept called “the value of a statistical life” (VSL) to think about the trade-off between the risk of dying and money. For example, how much more are you willing to pay for upgraded safety features on a car?
Estimates of the value of a statistical life typically come from analyzing how much more must be paid to achieve incremental reductions in the risk of death. How much more, for example, do you have to pay workers to take a job with a given risk of death? Or how much more would you be willing to pay for a safety feature, say a new and improved airbag, that reduces your risk dying in a car crash?
VSL estimates are used widely in the U.S. and other countries to consider the costs and benefits of health, safety, and environmental regulations. Putting a dollar value on human life, however distasteful, can help examine the cost-benefit trade-offs of important decisions such as how much we should be willing to damage the economy to prevent the spread of Covid-19.
To get a handle on this, we considered data from the Centers for Disease Control and Prevention. According to the New York Times, the CDC projected that if no actions are taken to prevent the spread of Covid-19, between 160 million and 214 million American will be infected, with between 200,000 to 1.7 million people dying from it. Given what we know so far, the majority of those deaths will be among people over age 50. This is important because the value of a statistical life decreases with age.
If the average age of those killed by Covid-19 is 60, value of statistical life estimates put the cost of each death at approximately $5 million. Using the CDC’s most dire estimate, the economic cost of lives lost if we do nothing is $8.5 trillion, or just under half of U.S. gross domestic product. This does not account for the costs of suffering for those who get sick but do not die, lost productivity due to illness, or direct medical expenditures.
To be sure, we aren’t doing nothing. The economic costs of combating the Covid-19 epidemic are already large and mounting. Small businesses, restaurants, hospitality, travel and many more face large losses amid the shutdowns and lockdowns. The stock market has plummeted. Schools in the largest districts around the nation are closing their doors and kids, despite their parents’ best efforts, are missing out on valuable learning and socialization. The economic consequences of school shutdowns are difficult to gauge but could be long-lasting if we cannot make up for lost time.
But, as made clear by the value of a statistical life estimate, these costs must be weighed against the exceedingly high economic costs of not containing the virus. We should all be prepared to make significant economic sacrifices now to minimize the harm of this evolving crisis. Furthermore, we should provide assistance to help those who are disproportionally affected by such measures weather the current storm and get back on their feet once the epidemic has passed.
Now is the time to use the U.S.’s immense resources to contain Covid-19 and mitigate its health and economic consequences for all Americans.
Mireille Jacobson is a senior fellow at the USC Schaeffer Center for Health Policy & Economics, and an associate professor at the USC Davis School of Gerontology. Tom Y. Chang is an associate professor at the Marshall School of Business at USC.