In our paper, we study the economic effects of the largest influenza pandemic in U.S. history, the 1918 Flu Pandemic which lasted from January 1918 to December 1920, and spread worldwide. It is estimated that about 500 million people, or one-third of the world’s population, became infected with the virus, leading to at least 50 million deaths worldwide, with 550,000-675,000 occurring in the United States. The pandemic thus killed about 0.66 percent of the U.S. population, and, in particular, resulted in high death rates for young (18-44) and healthy adults. In our research, we exploit variation in both the severity of the pandemic, as well as the speed and duration of NPIs implemented to fight disease transmission across U.S. states and cities. NPIs implemented in 1918 resemble many of the policies used to reduce the spread of COVID-19, including closures of schools, theaters, and churches, bans on public gatherings and funerals, quarantines of suspected cases, and restrictions on business hours. Our paper yields two main insights. First, we find that areas that were more severely affected by the 1918 Flu Pandemic saw a sharp and persistent decline in real economic activity. Second, we find that cities that implemented early and extensive NPIs suffered no adverse economic effects over the medium term. On the contrary, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic subsided. Altogether, our findings suggest that pandemics can have substantial economic costs, and NPIs can lead to both better economic outcomes and lower mortality rates. Our two main findings are summarized in the chart below, which shows the city-level correlation between 1918 flu mortality and the growth in manufacturing employment from 1914 to 1919 (two census years). As the chart reveals, higher mortality during the 1918 flu is associated with lower economic growth. The chart further splits cities into two groups: those with NPIs in place for longer (blue dots) and shorter periods of time (red dots). Cities that implemented NPIs for longer tend to be clustered in the upper-left region (low mortality, high growth), while cities with shorter NPI periods are clustered in the lower-right region (high mortality, low growth). This suggests that NPIs play a role in attenuating mortality, but without reducing economic activity. If anything, cities with longer NPIs grow faster in the medium term.
Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu
We examine the 1918 flu to understand whether social distancing has economic costs or if slowing the spread of the pandemic reduced economic severity.