Potential Economic Impact of School Closures Due to the COVID-19 Pandemic

School closures can directly and indirectly affect the nation’s economy in the present as well as in the future. Some insights that demonstrate the potential economic impact as well as the impact that has already become visible have been provided below.

Potential Economic Impact Due to School Closures

1. Learning Loss

  • School closures contribute to learning loss for students and affects their long-term education and career development.
  • In the opinion of the California Governor Gavin Newsom, schools should be reopened early in order to minimize the loss of learning for students. Although he is concerned about all students, he is especially concerned about Latino and low-income black students.
  • He said, “That learning loss is very real. And from a socio-economic frame, from a racial justice frame, this is even more compounding and more challenging. And so it is incumbent upon us to think anew with respect to the school year.”
  • Chris Evans, who is the superintendent of Natomas Unified in Sacramento, said in support of the governor’s stance, “It’s two-fold. He’s worried about the education gap, and to stimulate the economy as people begin to phase back to work. He needs a place for kids to be.”
  • Educational Results Partnership, a non-profit in Sacramento that analyzes data, suggested, “If not mitigated, the educational and economic disruption caused by this pandemic will lead to lasting academic and life setbacks for current students and those entering the workforce.”

2. Asymptomatic Transmission

  • Evidence suggests that children are much less likely to spread the virus as compared to adults.
  • Denmark reopened schools recently, and the reproduction factor of the virus was recorded to be below 1, which means the virus is not spreading rapidly.
  • Studies have shown that children are less contagious as compared to adults. Researchers from the Netherlands and Iceland failed to identify a case where the virus was brought to their homes by a child. However, that cannot be said with certainty, as research in this field is still in progress.
  • Although children are less likely to spread the coronavirus, as data suggests, it could be possible that children may even become ‘super spreaders’. This is because even if children are carrying the virus, they rarely show any symptoms. And asymptomatic transmission has been dubbed as ‘the most intractable aspect of this pandemic’ by Manfred Prenzel, member of a panel that advises the German government about reopening schools and a prominent educationalist.
  • Some European countries have taken a different route in reopening schools and tested every single students before allowing them to join schools. Testing costs $44 per student, however, this cost was ‘cheaper’ for Luxembourg as compared to shutting down their economy. Mr. Tesch, headmaster at a school in Luxembourg said, “It’s a lot of money, but it’s cheaper than shutting down your economy.”
  • The question of reopening schools perplexes decision makers, and governments are hesitant in hasting to reopen schools. That is because there is a chance of children spreading the virus and the reopening of schools could bring a second wave of the virus, which may cause even more damage to the economy than school closures in the first place.

3. Long-Term Impact on the Development of Children

  • Summer vacations can be used to model the kind of ‘learning setbacks’ that school children suffer from. Comparing vacations to school closures lasting several months long can shed light on the possible loss of learning for 50 million students in the US.
  • A nonprofit organization, Northwest Evaluation Association, that measures student performance for school districts recently published a study that shows that students may not be able to retain their study gains due to lack of instruction caused by school closures. The loss of academic growth, aka Covid slide, varies between subjects with Math being on top with the potential loss of 50-100% of growth in a year.
  • Projections show that an entire generation can be affected due to these learning losses caused by school closures during the pandemic.
  • This loss can contribute to loss of future opportunities for such students, “including economic benefits, such as additional earnings, with far-reaching consequences“, as suggested by the Brookings Institute. Modeling has shown that learning losses resulting from the crisis caused by World War II had negative impacts on the lives of the then students even after 40 years.
  • With similar consequences, estimates show that loss of learning for 4 months during the COVID-19 pandemic can cost the US up to $2.5 trillion in the future, which amounts to 12.7% of its GDP.

4. With Schools Closed, Parents Cannot Return to Work

  • As businesses reopen, workers have to return to their jobs, however, those with children staying at home due to school closures will either have to let go of their jobs or reduce their work hours.
  • Not only schools are closed but daycare centers as well as preschools are also closed due to safety regulations.
  • Many working parents rely on schools for being their childcare providers. They drop their kids at school before it even starts and many schools offer after school programs that can run until evening or even later. With schools, daycare centers, and preschools closed, parents have no other way to ensure that their kids are taken care of when they are at work.
  • Congress has passed a paid leave program for parents that cannot join their jobs because of the closure of their children’s schools, however, the program applies to medium-sized businesses only and not to companies with 50 or fewer employees. More than 75% of employees in the US work at companies that are exempt from the paid leave requirements.

5. Online Learning and Inequality

  • Online learning has the potential to worsen educational inequality because approximately 20% of students in the US do not have a computer and a reliable internet connection at their homes. Families of color and low-income families represent the larger portion of this population.
  • Health concerns can also rise due to school closures and children staying at home. Pediatrician Dr. Nina Agarwal wrote, “When there is household dysfunction — domestic violence, parental substance abuse or a mental disorder — the risk of child abuse goes up, and there’s reason to believe all of these things will increase during this pandemic.”
  • With these inequalities in place, education and learning of many will be affected, which can create a learning loss and ultimately affect the economy negatively, as discussed above.

Already-Visible Economic Impact Due to School Closure

1. Economic Activity

  • Research has shown that close to 10% of economic activity has been reduced due to school closures and this cannot be reversed unless schools/daycare centers are reopened.
  • This can be understood if school closures are considered in the context of the indirect impact that they have on the economy. For example, businesses are starting to reopen, however, employees with children staying at home cannot rejoin their workplaces. This can directly impact the employees’ families as well as the employers.

2. Business Closures

  • Apart from upfront/direct costs associated with school closures, consumers, investors, as well as business owners are also taking hits in terms of cancellation of events as well as consumer confidence. Senior economist at the University of Utah, Dean Baker, said, “[School closures] won’t happen in isolation. If we’re seeing more school closures that means a lot of public events and businesses are seeing big hits, and that’s a bad story.”
  • The bad story narrated by Baker has the potential to reduce economic activity for all, including investment, availability of capital, hiring, etc.
  • School closures have indirectly affected consumer confidence, which translates to market activity. Director at Moody’s Analytics Chris Lafakis explained that consumer confidence “is the bedrock of a functioning economy.”
  • Lafakis said, “School closures only reinforce the collapse in confidence, and confidence is really everything. Confidence is the difference between an economy that is expanding and one that is in recession. The coronavirus has done a good deal of damage to confidence already, and it’s only going to increase as more schools close.”

3. Impact on Employed Parents

  • Research and surveys have shown that parents have been impacted on varying levels due to school closures and children staying at homes.
  • A survey commissioned by the Florida Council of 100 business group revealed that “41 percent of employed parents with minor children said Florida’s school closures or a lack of child care have ‘somewhat’ hurt their ability to fully perform their jobs during the pandemic, while 23 percent of working parents said they had been ‘greatly’ impacted.
  • Mothers are even more disturbed and have demonstrated “greater levels of difficulty performing job responsibilities while juggling child care: 71 percent say that this has either somewhat (41 percent) or greatly (23 percent) hurt their job performance, compared with 44 percent of employed fathers who say so.”

Research Strategy

We have provided some insights that shed light on the potential economic impact of school closures along with other insights that demonstrate the economic impact that has already materialized and can be observed through relevant data. We have focused on providing insights that are relevant to the US, however, one insight (symptomatic transmission of the virus in children) has been analyzed with the help of examples from some European countries that have reopened schools. These examples are relevant to the US because the insight relates to the spread of the virus, which remains pretty much the same in Europe and the US, or any other country for that matter.

Glenn is the Lead Operations Research Analyst at The Digital Momentum with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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