A survival strategy for the Swiss economy (position paper)
May 2020
Testing and freezing
For a small open economy like Switzerland, the long-term maintenance of a rigorous testing system is particularly important. As an international hub with lots of business travel, extensive tourism and many cross-border commuters, once an initial wave of infections in the country has subsided, imported infections can be expected to continue to occur regularly. A reliable infrastructure for systematic testing and contact tracing is therefore essential to prevent impending new outbreaks until an effective vaccine against the virus is available.
The goal must be to "freeze" the economy in its pre-crisis state for the duration of the business closings, so that Switzerland's well-established economic structures can be preserved and quickly put back into operation after the current restrictions will been lifted. The mentioned prioritization of nationwide testing is a prerequisite to be able to end this freezing of the economy as soon as possible.
Introduction
The position paper signed by all professors of the Department of Economics on March 26, 2020 summarizes the current consensus of the economic debate and shows opportunities for action for Switzerland.
The coronavirus has the world in its grip. The number of human lives the pandemic will cost is as unpredictable as its economic and social consequences.
However, it is certain that the measures to contain the virus have already caused a major global economic crisis. In many countries, applications for unemployment and short-time work programs are currently increasing at an unprecedented rate that far exceeds the peaks of the "Great Recession" of 2009. At that time, the proportion of short-time work in Switzerland increased to two percent of all employees within six months. This pales in comparison to the current crisis, in which the number of short-time work requests skyrocketed by two percent of the workforce in a single day. Short-time work now affects eight percent of all employees and is growing rapidly. It is becoming apparent that all of the world's major economies will see a substantial fall in economic activity this year. Various economic research institutes predict that Switzerland's economic output will decline by 2 to 3 percent this year. The actual extent of the economic loss will largely depend on the future course of the epidemic and the measures taken to counter it.
The dilemma in this situation is that the most effective medical and epidemiological measures - from "social distancing" to extensive curfews - also have the greatest negative impact on the economy by massively restricting the demand for goods and services and bringing supply chains to a standstill. There seems to be a painful trade-off: The more we "flatten" the pandemic curve, the steeper the economic curve points downwards.
The authors of this policy paper - all medical laypersons - expressly support the current epidemic measures. These are necessary and appropriate in the short term in order to prevent our health systems from overloading and to keep the number of victims as small as possible.
The aim of this policy paper is to lay out our view of the consensus that is emerging in the economics profession after thourough debates on how to deal with the crisis. This consensus essentially boils down to two conclusions.
Testing
First, the dilemma between medical necessity and economic costs is short-term. A considerable restriction of economic activity is currently required in order to prevent the virus from spreading exponentially. In the medium term, however, what is necessary from a medical standpoint is also desirable economically. The most important measure, both from a medical and economic point of view, is a large investment in the capacity to test for the virus and track the contacts of infected people (“contact tracing”). This will create room to maneuver and gradually lift the current restrictions on the economy.
Freezing
Second, the total economic costs of the crisis largely depend on the nature of the economic policy response. Financial emergencies should be prevented and the economic structures "frozen" for the duration of the crisis. This requires that the state both compensate the loss of earnings of workers and support companies that experience significant drops in sales. Switzerland's healthy public finances provide the necessary fiscal room to maneuver. The economic policy measures implemented by the Federal Council so far point in an encouraging direction.
The position paper signed by all professors of the Department of Economics on March 26, 2020 summarizes the current consensus of the economic debate and shows opportunities for action for Switzerland.
The coronavirus has the world in its grip. The number of human lives the pandemic will cost is as unpredictable as its economic and social consequences.
However, it is certain that the measures to contain the virus have already caused a major global economic crisis. In many countries, applications for unemployment and short-time work programs are currently increasing at an unprecedented rate that far exceeds the peaks of the "Great Recession" of 2009. At that time, the proportion of short-time work in Switzerland increased to two percent of all employees within six months. This pales in comparison to the current crisis, in which the number of short-time work requests skyrocketed by two percent of the workforce in a single day. Short-time work now affects eight percent of all employees and is growing rapidly. It is becoming apparent that all of the world's major economies will see a substantial fall in economic activity this year. Various economic research institutes predict that Switzerland's economic output will decline by 2 to 3 percent this year. The actual extent of the economic loss will largely depend on the future course of the epidemic and the measures taken to counter it.
Interview and media requests to victoria.watts@econ.uzh.ch / +41 44 634 35 99
Press
Why the unemployed in America could face a lost decade The Economist 2.5.2020 read
Will the covid-19 pandemic accelerate automation? The Economist 22.4.2020 read
Coronavirus deaths greater where Fox News viewers watched ‘Hannity’ more than Tucker Carlson, says U. of C. study Chicago Tribune 20.4.2020 read
Trade and travel in the time of epidemics VoxEU e-book chapter by Joachim Voth 6.3.2020 download
Throughout history, pandemics have had profound economic effects The Economist 2.3.2020 read
Signatories
All professors of the Department of Economics at the University of Zurich signed this position paper.
Carlos Alós-Ferrer, NOMIS Professor for Decision and Neuroeconomic Theory | Sandro Ambühl, UBS Foundation Assistant Professor of Behavioral Economics of Financial Markets | Björn Bartling, Professor of Behavioral and Experimental Economics | Pietro Biroli, UBS Foundation Assistant Professor of Applied Economics | Theodora Boneva, Assistant Professor of Economics of Child and Youth Development, endowed by the Jacobs Center for Productive Youth Development | Anne Brenøe, Larsson-Rosenquist Foundation Assistant Professor of Child and Youth Development with a focus on breastfeeding | Lorenzo Casaburi, Swiss Re Foundation Assistant Professor of Development Economics | Gregory Crawford, Professor of Applied Microeconomics | David Dorn, UBS Foundation Professor of Globalization and Labor Markets | Christian Ewerhart, Professor of Information Economics and Contract Theory | Ernst Fehr, Professor of Microeconomics and Experimental Economic Research | Todd Hare, Associate Professor of Neuroeconomics and Human Development | David Hémous, UBS Foundation Associate Professor of Economics of Innovation and Entrepreneurship | Mathias Hoffmann, Professor of International Trade and Finance | Nir Jaimovich, Professor of Economics | Damian Kozbur, Assistant Professor of Econometrics | Guilherme Lichand, Assistant Professorship for Child Well-Being and Development, supported by UNICEF Switzerland | Michel Maréchal, Professor of Economics of Organizations and Behavior | Nick Netzer, Professor of Microeconomics | Ralph Ossa, Kühne Foundation Professor of International Trade | Dina Pomeranz, UBS Foundation Assistant Professor of Applied Economics | Marek Pycia, Professor of Organizational Economics | Christian Ruff, Professor of Neuroeconomics and Decision Neuroscience | Florian Scheuer, UBS Foundation Professor of Economics of Institutions | Armin Schmutzler, Professor of Microeconomics, Industrial Organization, and Environmental Economic | Jakub Steiner, Associate Professor of Microeconomic Theory, | Philippe Tobler, Associate Professor of Neuroeconomics and Social Neuroscience | Joachim Voth, UBS Foundation Professor of Macroeconomics and Financial Markets | Roberto Weber, Professor of the Economics of Corporate Culture, Business Ethics and Social Responsibility endowed by Credit Suisse | Rainer Winkelmann, Professor of Statistics and Empirical Economic Research | Ulrich Woitek, Professor of Economic History | Michael Wolf, Professor of Econometrics and Applied Statistics | David Yanagizawa-Drott, Professor of Development and Emerging Markets | Ulf Zölitz, Assistant Professor of Economics of Child and Youth Development, endowed by the Jacobs Center for Productive Youth Development | Josef Zweimüller, Professor of Macroeconomics and Labor Markets.
All professors of the Department of Economics at the University of Zurich signed this position paper.
Carlos Alós-Ferrer, NOMIS Professor for Decision and Neuroeconomic Theory | Sandro Ambühl, UBS Foundation Assistant Professor of Behavioral Economics of Financial Markets | Björn Bartling, Professor of Behavioral and Experimental Economics | Pietro Biroli, UBS Foundation Assistant Professor of Applied Economics | Theodora Boneva, Assistant Professor of Economics of Child and Youth Development, endowed by the Jacobs Center for Productive Youth Development | Anne Brenøe, Larsson-Rosenquist Foundation Assistant Professor of Child and Youth Development with a focus on breastfeeding | Lorenzo Casaburi, Swiss Re Foundation Assistant Professor of Development Economics | Gregory Crawford, Professor of Applied Microeconomics | David Dorn, UBS Foundation Professor of Globalization and Labor Markets | Christian Ewerhart, Professor of Information Economics and Contract Theory | Ernst Fehr, Professor of Microeconomics and Experimental Economic Research | Todd Hare, Associate Professor of Neuroeconomics and Human Development | David Hémous, UBS Foundation Associate Professor of Economics of Innovation and Entrepreneurship | Mathias Hoffmann, Professor of International Trade and Finance | Nir Jaimovich, Professor of Economics | Damian Kozbur, Assistant Professor of Econometrics | Guilherme Lichand, Assistant Professorship for Child Well-Being and Development, supported by UNICEF Switzerland | Michel Maréchal, Professor of Economics of Organizations and Behavior | Nick Netzer, Professor of Microeconomics | Ralph Ossa, Kühne Foundation Professor of International Trade | Dina Pomeranz, UBS Foundation Assistant Professor of Applied Economics | Marek Pycia, Professor of Organizational Economics | Christian Ruff, Professor of Neuroeconomics and Decision Neuroscience | Florian Scheuer, UBS Foundation Professor of Economics of Institutions | Armin Schmutzler, Professor of Microeconomics, Industrial Organization, and Environmental Economic | Jakub Steiner, Associate Professor of Microeconomic Theory, | Philippe Tobler, Associate Professor of Neuroeconomics and Social Neuroscience | Joachim Voth, UBS Foundation Professor of Macroeconomics and Financial Markets | Roberto Weber, Professor of the Economics of Corporate Culture, Business Ethics and Social Responsibility endowed by Credit Suisse | Rainer Winkelmann, Professor of Statistics and Empirical Economic Research | Ulrich Woitek, Professor of Economic History | Michael Wolf, Professor of Econometrics and Applied Statistics | David Yanagizawa-Drott, Professor of Development and Emerging Markets | Ulf Zölitz, Assistant Professor of Economics of Child and Youth Development, endowed by the Jacobs Center for Productive Youth Development | Josef Zweimüller, Professor of Macroeconomics and Labor Markets.