Alaska’s economy and the COVID-19 virus

Abstract

The Alaska economy, similar to the rest of the world, will contract over the next few weeks and months due to the COVID-19 virus that has forced businesses to close or significantly curtail operations. While it is near impossible to identify the true economic consequences of these measures, we make educated assumptions about the size of the layoffs in the most vulnerable sectors. To get the full scale of the potential losses, we estimate multiplier effects from these losses using an input output model. Layoffs in the directly affected sector could exceed 27,000 with a payroll of almost 80 million dollars in the month of April. The indirect and induced effects of this shock could result in another 21,000 jobs lost if the employment separations are not temporary. In the second quarter of 2020, direct GDP losses due to the decline in economic activity -not including declines in oil prices- could amount to almost 2 billion dollars. If the disruption in economic activity is not short-lived, we could expect another 2 billion dollars in losses due to the indirect and induced effects. The significant Federal aid package which will provide a boost to unemployment insurance, direct transfers to households, and aid to businesses will certainly dampen some of the consequences we estimate. While the short term costs of social distancing are high, Alaska’s long term economic health depends on first containing the virus.