Pandemic school closures could create a drag on the economy for years

Key Points
  • There is evidence that school closures due to the pandemic will have a devastating impact on the economy for decades as this generation of school children hit their prime earning years.
  • What's more, the damage will be felt most acutely by the poorest in the land, further widening the gulf of income inequality in the U.S. and around the globe.
  • In 2045, when these students hit ages 29 to 39, their peak time for earning potential, those losses could reach nearly $150 billion, adjusted for inflation.
Jay Horton, 6, attends virtual first grade on the first day of school at the Horton familys home in Arlington, Virginia on Tuesday, September 8, 2020.
Amanda Andrade Rhoades | The Washington Post | Getty Images

Newly confirmed Education Secretary Miguel Cardona will have his hands full as he navigates the perilous journey to reopening schools that have been largely shuttered for a year during the Covid pandemic.

"We have many great examples of schools throughout the country that were able to reopen safely and do so while following mitigation strategies," Cardona said at his confirmation hearing last month.

Most states are offering at least part-time in-person learning, according to Education Week, with states like Texas, Iowa and Florida fully open for parents who want it.

The Centers for Disease Control and Prevention has issued new guidelines for reopening that include masking, social distancing, testing and contact tracing. And President Joe Biden's Covid relief bill aims to provide funding for things like protective gear, smaller classes and upgrading ventilation systems.

Still, many teachers' unions have pushed back, angling first to get teachers to the front of the line for vaccination. Biden said Tuesday he wants all teachers to receive at least one shot by the end of this month.

As the controversy over how and when to reopen schools rages, there is growing evidence that the closures will have a devastating impact on the economy well into the century as this generation of school children hit their prime earning years.

What's more, the damage will be felt most acutely by the poorest in the land who have fewer resources to make up for their children's lost learning, further widening the gulf of income inequality in the U.S. and around the globe.

According to research from the Federal Reserve Bank of San Francisco, learning disruptions could lower the level of annual economic output in the U.S. by a quarter of a percentage point on average over the next 70 years.

While a fraction of a percent may not seem like much, the study, using the Congressional Budget Office projection of potential output, found that the loss to the economy could equal $90 billion a year on average.

In 2045, when these students hit ages 29 to 39, their peak period of earning potential, those losses could reach half a percentage point, or nearly $150 billion, adjusted for inflation.

"This is a loss they will carry for rest of their lives," said Huiyu Li, a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco and co-author of the study.  "When they reach prime age, it will have the biggest impact."

Lower incomes over lifetimes

A study from the Organization for Economic Cooperation and Development released in September looked at the issue from a worldwide perspective. It notes that "students in grades 1-12 affected by the closures might expect some 3 percent lower income over their entire lifetimes."

The impact will be greater for kids from poorer families.

"All indications are that students whose families are less able to support out-of-school learning will face larger learning losses than their more advantaged peers, which in turn will translate into deeper losses of lifetime earnings," the study says.

In the U.S., children from lower income households have been disproportionately affected by the shutdowns, economists say. Notably, low-income teens are dropping out of school at high rates to help support their families amid their parents' job losses.

"We've seen dropouts pick up dramatically in low income homes," said Diane Swonk, chief economist for accounting firm Grant Thornton. "Black teens have increased their labor force participation rate, helping to cover basic expenses of the home, like food and shelter."

Wealthy parents can do more to offset the lost learning, economists say, like hiring tutors or home schooling their kids. But for lower-income, often less-educated parents, it's harder to replace the reduction in public investment.

That in turn could stifle "intergenerational upward mobility," said Li.

"We like to see children from that demographic become first to go to college," she said. "Now it will be more difficult for some of those children to be the first generation to go to college."

Lowering the standard of living for all

The economically disadvantaged will not be the only ones to suffer the consequences.

Beyond "cutting off lifetime potential earnings for these students, we are also cutting off the talent pool the country will need to move forward at a time when the population is aging," said Swonk. She pointed to falling birth rates and life expectancy, and a shutdown of immigration due to Trump administration policies as contributing an ongoing shortage of skilled workers.

"It's not just about eroding individual earnings," she said, "but the whole economic pie. It undermines the ability to grow as a whole."

What's more, Social Security and other entitlements of an aging population depend on younger workers' income.

"The kids today are the future workforce of tomorrow, and tomorrow's workforce will support retirement of people today, so I think it is an important thing to consider," said Li.

Society can take steps to limit the downside if the political will is there.

Investment in year-round schooling and funds for child care could help kids catch up and help parents get back to work.

Studies from war-torn areas and regions hit by natural disasters show that learning can be made up, with significant investment, Swonk said.

"We have to allocate the resources to remedy this," said Swonk. "You want to make sure states have enough funding. We all benefit from training people. Education is one of the most basic of public goods."

Playing catch-up

It's not yet clear, however, whether adequate funding will be in the cards.

Biden's $1.9 trillion Covid relief measure called for $130 billion to safely reopen public schools, covering such things as ventilation and social distancing.

But remedial education will take more money, Li and Swonk said. And the appetite for more funding is unclear in the current climate in Washington. Biden's bill is expected to pass without a single Republican vote. The Democrats' slim majority in Congress means further spending will need Republican support.

Because the most dramatic effects of lost learning don't happen for many years, it could make it harder to pry money from Congress now.

"The costs that we are illustrating will manifest in very long term," said Li. "I realize that in the near term, there are more urgent issues," she said. "To really get out of the pandemic, we have to solve the health problem. The ultimate solution is to get people vaccinated."