The economics of closing schools

The coronavirus has caused a number of countries to close schools. This may be a mild positive for the economy.

Schools provide two functions; education, and childcare. Unless schools are closed for a very long time indeed, the loss of education should be minimal. It is the childcare function that will matter. So what changes in the economy?

Teachers should not be a negative for the economy, as long as they are paid while the school is closed. The question is whether teachers act differently with this unexpected time off. Teachers may use the time off to play online games, or redecorate, or otherwise spend more than they normally do in term time. That would be a modest positive for the economy.

Children as a rule are economic cost centres. They do not add much to GDP. However children at home need to be occupied. If sales of online education go up, for instance, that will be an economic boost. If spending on entertainment, toys, etc. rises relative to normal term time spending, then having children at home is an economic positive.

Parents are the difficulty. It all comes down to childcare. If one parent is not working, this is economically neutral. However, rising workforce participation rates mean more parents are working. If the school is not providing childcare, there are four options for working parents. First, no childcare is provided. In the UK there is no law setting an age at which children can be left alone. Government guidelines suggest twelve years old. There is no economic cost of leaving children alone. Second, friends or relatives who would not otherwise be employed look after the children for free. That is economically neutral. Parents who work from home would also be economically neutral. Third, someone is paid to look after the children. That is economically positive. There is now an additional economic service being paid for. It may be the same service that grandparents are providing for free, but GDP ignores the grandparents and registers the paid childcare.

Fourth, a parent takes time off work. The economic impact here depends on how this happens. If the parent takes paid leave, there should be almost no economic impact (in terms of GDP). It is just someone taking holiday. It is possible that future spending on tourism would suffer, if parents use their holiday early for childcare. If a parent takes unpaid leave, this is an economic negative. How big an economic negative depends on how many people unpaid leave, the economic value of their jobs, and to what extent this is offset by spending on entertainment etc. The last point would be an increase in the consumption rate and a reduction in the savings rate.

There is a final consideration. The main economic cost of the virus is fear. Twitter is a "super-spreader". Closing schools sounds like a dramatic action and may spread fear. Alternatively closing schools may irritate people. Irritated people are likely to be more dismissive of the severity of the virus. Opinion polls in Italy would suggest that the quarantine there has prompted irritation more than fear.