Historical epidemics provide only a loose guide to the likely economic impact of coronavirus. What history does suggest is that when they occur in societies already under stress, they can provoke wide-ranging and long-term changes in attitudes, culture and institutions.
Covid-19 has made it important to understand the profound long-term economic effects of epidemics. Epidemics have repeatedly altered the paths of human societies in all regions of the world. Their direct economic consequences include lowering the numbers of workers and damaging the health and productivity of survivors and their descendants. Epidemics also have indirect effects by creating changes in the culture, politics and organisation of societies. It is these later changes that have had the greatest impact in the very long run.
Are all pandemics the same?
Fortunately not. The effects of epidemics vary depending on the disease and the condition of the societies they afflict. The starkest consequences resulted from pandemics of bubonic plague, such as the Black Death in the fourteenth century, and the vicious ‘virgin soil’ epidemics that occurred when infectious diseases such as smallpox and measles reached communities that had no prior exposure to them.
The principal example of the latter is the ‘Columbian Exchange’, which spread Eurasian diseases to the Americas from the end of the fifteenth century (Crosby, 1972). The combination of disease and conflict made for particularly severe results.
Both pre-modern plague and the epidemics in the Americas were distinguished by rates of mortality that are far in excess of those seen with Covid-19. More recent pandemics – cholera, the Spanish flu and HIV/AIDS – have fortunately killed much smaller shares of the population making the identification of long-term consequences harder.
Here, I begin by discussing the different ways epidemics have affected economies in the long run, before concluding on the question of what this suggests for Covid-19.
Why have pandemics had long-run economic consequences in history?
We are currently witnesses to the sharp short-term economic impact of Covid-19 as it cuts supply and demand, disrupts trade, drives up unemployment and bankruptcies, and creates enormous uncertainty about the future. As the disease is brought under control, the global economy should recover, although how fast and how fully remain to be seen.
The longer-term economic effects of pandemics have a different character to the short-term turmoil they create. The most obvious impact comes when higher mortality reduces the working population. All else being equal, once the initial disruption has past, fewer workers will mean higher wages for those who remain.
Conversely, the returns to physical capital – buildings, machinery and so on – will be lower for a while. One result of this is that inequality should fall, as workers gain better terms while the wealthiest people, those who own much of the world’s capital, take a smaller slice of the pie.
Plagues can thus make societies richer at an individual level and less unequal (Scheidel, 2017) – although this depends greatly on two things: first, which age group is most affected by the disease; and second, any attempts by governments to prevent change.
Finally, where these shifts occur in societies that are already under stress for other reasons, epidemics can provoke wider and long-term changes in attitudes and institutions.
What about the damage to individuals?
Even short-term downturns can have long-lasting results. Young people entering the job market in a recession face lower wages and higher unemployment for their lifetime (Kahn, 2010). But epidemics can also have long-term harmful consequences for individuals affected, even if they are not yet born.
For example, the educational achievement, income and status of Americans who were in the womb during the 1918-19 influenza epidemic were reduced because of their exposure to the disease (Almond, 2006). Similar results have been found for other countries.
Related question: Does the Spanish Flu offer lessons in how to tackle a pandemic?
These effects of exposure to epidemics appear to continue into the next generation and perhaps even to the grandchildren of those affected (Richter et al, 2013; Cook et al, 2019). The size of the impact is often modest, but it may be underestimated given the assumptions made about who was affected: research in this area is still new.
Whether Covid-19 will have similar effects is unknown (Royal College of Obstetricians and Gynaecologists, 2020). We do not fully understand the mechanism by which exposure to epidemics (or other diseases) while in the womb affects adult health and ability. Understanding – and ameliorating – these persistent harms from disease is a key issue.
What does the historical evidence show about the economic impact of epidemics?
A shortage of workers might seem a temporary thing, easily solved by a higher birth rate. But this turns out not always to be the case.
Historically, human populations have often taken long periods of time to recover from epidemics, turning a short-term shift in the ratio of workers to capital into a longer-standing change.
The effect of the Black Death falls into this category of event: it was an enormous shock that was followed by several centuries of repeated plague outbreaks. The resulting boost to real wages was similarly sustained for a long period, as the figure shows, before falling back in southern Europe, but not in the North-West (Allen, 2001).
Figure 1: 14 year moving average of building labourers' real wages
Source: Allen, 2001
Do all epidemics boost living standards?
Unfortunately not. This boon for the survivors of epidemics is not seen in all cases. Economists struggle to separate the effects of disease from the impact of colonisation, but there is little doubt that the epidemics that began with Columbus’s voyages led to a steep and long-lasting fall in standards of living in Central and South America (Allen et al, 2012).
Similarly, where epidemics afflict thinly populated areas – such as medieval Spain – economic activity can falter (Alvarez-Nogal et al, 2020). Similarly, in fourteenth century Egypt, depopulation from plague led to the failure of parts of the irrigation system that kept the Nile delta fertile (Borsch, 2017).
These cases occur when epidemics unpick the fabric of the economy by pushing population below the level that can sustain certain kinds of economic exchange and organisation: they lose the benefits of agglomeration. Rather than higher wages, we see falling living standards where this happens.
What were the longer-term effects of these big shifts in population?
The rise in real wages that came from the Black Death has been seen as one of the drivers of the decline of feudalism, a key moment in the rise of the northern European countries that culminated in the industrial revolution, and the move to nuclear families and women working for wages.
Some of these ideas have proven to be more compelling than others. Higher wages and the loss of tenants do seem to have made it harder for lords to maintain feudalism in England (Bailey, 2014), but across Europe the timing of the decline of feudalism varied greatly: the consequences of plague depended greatly on the context in which it occurred.
Where rising incomes for wage earners does seem to have mattered is in sustaining a longer-term shift in social and economic institutions. This occurred at the level of the family. Better off workers drove up demand for manufactured goods and cheese and meat, attracting young women into work. Later marriage and smaller families followed (Voth and Voigtlander, 2013).
Change also occurred at the level of the city and state. Plagues in sixteenth-century German cities made it easier for reformers to expand the role of urban governments in providing schools and welfare provision (Dittmar and Meisenzahl, 2020). A wider set of changes that opened up Europe’s economies is often linked to the Black Death. Profound institutional changes came from the shock of plague.
There is no similarly positive story to tell about the consequences of epidemics in the Americas. The enormous death toll and economic and social disruption they inflicted made colonisation easier and encouraged the turn to African slaves to supply labour.
Are historical epidemics a guide to the economic impact of coronavirus?
Only loosely. These famous pandemics afflicted a different type of world in economic terms. They were broadly ‘Malthusian’ societies in which having fewer people meant higher incomes for those who survived. Technological change was slow and education limited: these were primarily agricultural societies that traded little and had small service sectors. The large loss of life that occurred during plague freed up land for peasants.
Today, the relationship between population and income is more complicated. There is some evidence from the HIV/AIDS epidemic in sub-Saharan Africa that epidemics can still lead to higher wages (Young, 2005). But modern economies depend much more on education and skill, and they make use of forms of capital that are not constrained in the same way as farmland in medieval Europe.
Today’s workers, whose wages depend on their human capital and who largely cooperate in large firms that engage in extensive trade, are unlikely to benefit in the same way as peasants. Disruptions to education and training, and frictions in trade carry far higher penalties in 2020 than ever before.
Related question: What will be the impact of lockdown on children's development?
Covid-19 appears particularly unlikely to offer any kind of opportunity to its survivors. Mortality is highest among the elderly, who are already often outside the workforce, suggesting no substantial change in the supply of workers. While the impact of measures to control the spread of disease are dramatically affecting children and young workers’ ability to gain skills and reducing global flows of trade.
Where can I find out more?
A wide range of papers on the economic impact of epidemics and responses over time is available at the Economic History Society’s The Long Run blog, including links to relevant papers made freely available on the topic during the pandemic.
Who are experts on this question?
Many economists and economic historians have researched different aspects of the long-term impacts of epidemics:
- Mark Bailey at UEA has worked on the relationship between the Black Death and changes to feudalism.
- Samuel Cohn at Glasgow has published extensively on state (and popular) reactions to epidemics from medieval to modern times.
- Jeremiah Dittmar at LSE works on the link between epidemics and institutional change.
- Patrick Wallis works on the economic, social and medical history of Britain and Europe from the sixteenth to the eighteenth century.
- Guido Alfani at Bocconi researches epidemics in general and inequality.
- Douglas Almond at Columbia opened up the topic of how epidemics affect individual health and productivity.
