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Can the Great Barrington proposal save the economy?

Summary:
The Great Barrington Declaration argues against universal lock-downs: Those who are not vulnerable should immediately be allowed to resume life as normal. Simple hygiene measures, such as hand washing and staying home when sick should be practiced by everyone to reduce the herd immunity threshold. Schools and universities should be open for in-person teaching. Extracurricular activities, such as sports, should be resumed. Young low-risk adults should work normally, rather than from home. Restaurants and other businesses should open. Arts, music, sport and other cultural activities should resume. People who are more at risk may participate if they wish, while society as a whole enjoys the protection conferred upon the vulnerable by those who have built up herd immunity. Setting aside

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The Great Barrington Declaration argues against universal lock-downs:

Those who are not vulnerable should immediately be allowed to resume life as normal. Simple hygiene measures, such as hand washing and staying home when sick should be practiced by everyone to reduce the herd immunity threshold. Schools and universities should be open for in-person teaching. Extracurricular activities, such as sports, should be resumed. Young low-risk adults should work normally, rather than from home. Restaurants and other businesses should open. Arts, music, sport and other cultural activities should resume. People who are more at risk may participate if they wish, while society as a whole enjoys the protection conferred upon the vulnerable by those who have built up herd immunity.

Setting aside the epidemiological merits of the Declaration, the question remains: how much of an economic impact would a targeted easing up of restrictions have?

To answer that question, we need to figure out how much spending power is in the hands of "young low-risk adults", and how much is in the hands of "people who are more at risk." COVID-19 risk depends upon a variety of factors, including sex, blood-type, body mass index, and so on. However age appears to be a key risk factor - 40 to 49 year olds in the US are 10 times more likely to die from COVID than people between 18 and 29. The odds of COVID death for 50 to 64 year olds are 30 times the odds for someone between the ages of 18 and 29 (source). So, while age is not a perfect measure of COVID risk, we can use it to get a rough sense of how much of the purchasing power in our economy is in the hands of people who are vulnerable to COVID.

There are a couple of different data sets that can be used to estimate the distribution of after-tax income by age in Canada. The first is the Canada Revenue Agency's Taxation Statistics. These report the total amount of income declared by every Canadian taxfiler, broken down into five year age categories, as well as the taxes paid. They are not a perfect measure of after-tax income. They only include personal income reported for income tax purposes, not corporate income, nor any incomes not declared for tax purposes. Also, the taxation statistics do not include a measure of after-tax income, so I estimated it by calculating net income minus total taxes paid. Moreover, these numbers are from 2016, so are somewhat out of date.  But they serve to make a point.

First, even if young low-risk adults can work normally, it won't make much difference to the amount of money spent on restaurants, arts, music, sports and other cultural activities, because young low-risk adults don't earn much money. Many are in school or just starting out in the labour market. Young people's wages are relatively low, and their unemployment rates are relatively high.

In 2016, the age group that controlled the most economic resources was 50 to 54 year olds: the after-tax income of all Canadians in that age group added up to a total of $114 billion. The next highest earning age group 55 to 59 year olds, raking in a collective $110 billion after taxes, followed by 45 to 49 year olds. This should come as no surprise.  These cohorts are large. In 2016, people aged 50 to 54 were the single largest age group in Canada, followed by people 55 to 59. Moreover, people in their 50s and 40s are at the peak of their earnings potential.  

Income by age

The next figure presents this same information a slightly different way. It shows the percentage of total income received by people under the ages of 20, 25, 30, and so on. For example, the graph shows that people under the age of 20, who reported a total of $9 billion of after-tax income in 2016, accounted for less than 1 percent of the total after-tax income reported that year. People under the age of 30 accounted for 11 percent of the reported after-tax income. Less than half of after-tax income was received by people under the age of 50. The bulk of income was received by people 50 and over.

Percent earned by people under

As has already been noted, CRA's Taxation Statistics are not a perfect measure of after-tax income, so I double-checked the analysis using the 2016 Census PUMF. Again, the same pattern holds - roughly 10% of after-tax income is in the hands of people under 30, and the age group with the greatest after-tax income is 50-54 year olds:

Graph

Again, this data is slightly dated - but the aging of the baby boomers would be expected to push the bulk of purchasing power even higher up the age distribution.

It could be argued that people in their 20s and 30s don't earn that much money, but they're the ones who really keep the economy going. They're the ones buying homes, buying cars, buying consumer durables. This point has merit, but it only serves to strengthen the argument made in this post. Canada's housing market is on fire right now. Car sales are strong, as are sales of consumer durables. It's the service sector that's hurting - plays, music, restaurants, museums, art galleries, and so on. And, generally speaking, it's middle-aged people who have the disposable income to keep these sectors going.

Perhaps if middle-aged people were allowed to assess the risks of various activities and participate if they chose, enough would opt in to make a real difference to the health of the Canadian economy. But I wouldn't count on it.

Download data used to create this post here

Frances Woolley
I am a Professor of Economics at Carleton University, where I have taught since 1990. My research centres on families and public policy. My most-cited work is on modelling family-decision making, measuring inequality within the household, feminist economics, and tax-benefit policy towards families. I hold a BA from Simon Fraser University, an MA from Queen’s, and completed my doctorate at the London School of Economics, under the supervision of Tony Atkinson.

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