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What are the hidden costs of COVID-19 lockdowns to businesses?

Research details new ways of measuring the effects of prolonged lockdowns and suggests policy responses should address both the seen and unseen costs of COVID-19. It isn’t easy to quantify the full impact of COVID-19 lockdowns on Australia.

In business, many have suffered. While the most recent jobs data happily shows we’ve returned almost to pre-COVID levels of unemployment, Australia’s jobless rate peaked at 7.5 per cent in July 2020. Some people lost their livelihoods, while others managed to pandemic-proof their businesses to stay afloat. Companies still in business today, which tend to be larger firms, are seeking more workers – while many smaller companies and those in hard-hit industries, like tourism and entertainment, are still struggling

People’s health also suffered. The most visible impact of the pandemic in Australia has been the 910 tragic deaths of people with COVID-19. However, there are also significant and often less visible costs associated with decisions to implement lockdowns. Mental health and wellbeing took a hit due to social isolation, for example, while hospitals, staff and patients are also impacted with a backlog of postponed surgeries still pending. There is also the severe impact on children whose schooling was disrupted during lockdowns, and the long-term effects of reductions in GDP as a result of lower levels of trade.

It has been more than a year since COVID-19 became a commonplace term in people’s vernacular, and researchers can now look back and examine just how wide-ranging and significant the costs have been. Several recent studies examine the cost of lockdowns by calculating the impact on human welfare through a range of measures, from the decline in IVF pregnancies (due to IVF treatment being deemed “non-essential”) and increased loneliness through to the missed diagnosis of health conditions and deaths from other causes associated with the events of 2020.

With Victoria recently doubling its seven-day lockdown to 14 days in response to a growing COVID-19 cluster in Melbourne’s northern suburbs, such studies are critical in highlighting the need for policymakers to consider the visible and invisible impact – and associated cost – of lockdowns on important factors such as people’s long-term health and wellbeing.

What does research show?


Since governments started implementing lockdowns, researchers have been interested in how the number of deaths experienced during the COVID-19 pandemic compares to the deaths that would have been expected had the pandemic not occurred. This is a crucial comparison that cannot be known for certain, but it can be estimated in several ways.

Excess mortality, for example, is seen by many experts as a more comprehensive measure of the total impact of the pandemic on deaths than the confirmed COVID-19 death count alone. It captures not only confirmed deaths with COVID-19, but also any other deaths that were not correctly diagnosed, as well as deaths from other causes, including those potentially attributable to prevailing conditions.

UNSW Business School’s Professor of Economics Gigi Foster first examined the hidden costs of lockdowns in a paper published in the Australian Journal of Labour Economics, and built on this with an analysis submitted to the Victorian Parliament to supplement her testimony in August 2020. She revealed the minimum cost per six-week lockdown is at least three times greater than the benefit in terms of the COVID-related welfare that the lockdown could potentially save. Prof. Foster reached this conclusion even after consciously choosing to weigh her analysis in favour of lockdowns, by using the unproven assumption that lockdowns do actually save COVID-19 lives.

Prof. Foster says the best analysis she’s seen to date on the full cost of lockdowns is in a full-length research paper by New Zealand economist Dr Martin Lally, Director of Capital Financial Consultants, which uses data on excess mortality as a means of checking the accuracy of COVID-19 death reports. Citing the findings in Dr Lally’s paper, The costs and benefits of COVID-19 lockdowns in Australia, Prof. Foster suggests the hidden costs of lockdowns have been overlooked for too long.

In the paper, Dr Lally examines the costs and benefits of Australia’s lockdown strategy relative to the pursuit of a mitigation strategy in March 2020. His estimate is that 4000 to 17,000 additional deaths to 30 December 2020 could have occurred, had a mitigation strategy been pursued. The loss represented by these deaths should then be compared against the loss created by the choice to implement further lockdowns, rather than to mitigate. Based on this comparison, Dr Lally’s conclusion aligns with Prof. Foster’s: lockdowns cost far more lives than they saved.

The unseen cost of shutdowns on business and governments

Increased domestic violence risk, anxiety, loss of contact with friends and family, concerns about financial security, health and wellbeing, increased unemployment, and loneliness have all been linked – either directly or indirectly – to prolonged lockdowns. Moreover, when mental stress is extreme, suicides and domestic violence can increase, resulting in an additional loss of life during lockdowns. Indeed, in her analysis, Prof. Foster finds that the equivalent of 2170 lives are lost per month of lockdown as a result of declines in wellbeing.

She also found reductions in GDP, public and private spending, schooling disruptions, and overburdened healthcare during lockdowns (missed cancer screenings, stroke treatments, surgeries, etc.) also potentially result in more deaths and suffering from non-COVID-19 causes.

“Concerning the costs that are unseen of these policies, and this is not just for business but governments as well (because of course Dr Martin Lally, like many of us, does take the perspective of the whole society, which is the government’s perspective), is that in the long run, we’ve also jeopardised many, many different important aspects of our economy,” says Prof. Foster. “In particular, we have taken away the human capital development potential from many of our children when we’ve closed schools. There is a cost… you cannot have equivalent learning received online as you can in person.”

There is also a significant impact on healthcare. “There have been cancers not diagnosed, many surgeries not had, which will have consequences over the coming months and years. And those are partly consequences borne by businesses in the sense that their employees may get sick or need to have more time off, and might not be as productive, and also by governments, as they have to pay more in terms of health insurance and whatnot. So, these kinds of things are massive costs.

“When you look at what we’ve done to our GDP, what that means is that we have damaged our capacity as a society to spend on things that promote human wellbeing in the future. And so that massive crowd-out will be with us for years to come,” she says.

Mitigation strategies

Dr Lally and Prof. Foster have been calling on the government to adopt a mitigation strategy to protect the vulnerable, especially the elderly and the immunocompromised, to save as many lives as possible.

“No one’s ever been arguing for ‘let it rip’, but a mitigation strategy in which you target protection to those groups that you think are most vulnerable based on data,” says Prof. Foster.  “Just as we target government assistance to those who need it most, so should we be targeting protection against COVID-19 to those groups who need it most.

According to Prof. Foster, experts have known since March 2020 that COVID-19 disproportionately affects people of advanced age and those with compromised immune systems. Many older Australians live in aged care homes, that have had more than a year to implement procedures such as staff duty rostering and using technology to better protect residents.

She also notes that the past year has provided more than 12 months of data about which treatments and care protocols work best for COVID-19 infections that become symptomatic, and which preventative measures may inhibit serious symptoms from emerging altogether.

“Focusing our efforts on high-return areas like these is a much more pragmatic approach to managing COVID-19, that does not require paying the staggering costs of keeping the entire society prisoners in our homes and our country,” she says.

Finally, she says the confusion and uncertainty in the government’s policy response to COVID-19 have only added to the costs. And when there is uncertainty in the policy arena, people become hesitant to invest in things that promote long-run productivity and innovation potential. “Australia’s policymaking really hasn’t helped. It has not given clarity, timelines or expiration dates on some of these massive, draconian policies that we’ve never really seen in Australia,” she concludes.

Gigi Foster is a Professor in the School of Economics at UNSW Business School. She works in diverse fields including education, social influence, corruption, lab experiments, time use, behavioural economics, and Australian policy.


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