Regulatory Policy

Vaccine Mandates and the Labor Market

Jose Espinoza, 27, receives a COVID-19 vaccine at a vaccination clinic in Los Angeles, Calif., August 17, 2021. (Lucy Nicholson/Reuters)
How Biden's vaccine mandate could slow the economic recovery.

COVID-19 has had massive effects on the U.S. economy, and lingering cases have clearly been a negative in the numbers lately. Which raises the question: Will the vaccine mandate, however unpopular, have positive economic effects? Or will it cause disgruntled workers to quit their jobs and push the numbers in the opposite direction?

First, we should take a look at the health numbers. With the seven-day average of COVID-19 cases still hovering around 150,000 per day, even the most libertarian among us, while bristling about the overreach of the mandate, feel frustrated that the virus continues to plague the country. As bad as we feel, imagine how Isrealis feel: With about 80 percent of them vaccinated, just about a week ago, the seven-day average of COVID-19 cases exceeded its all-time high.

To be sure, vaccination continues to provide protection against extreme outcomes, but that protection is not perfect. Unvaccinated people are only about four times as likely to end up with a serious case, according to the CDC. Joel Zinberg in City Journal last week estimated that about 80 percent of Americans have either had COVID, so they have natural protection, or have been vaccinated, so the number of breakthrough cases is increasing as a percentage of total cases.

That means that vaccinating everyone will not give us a world without COVID-19. Indeed, the CDC estimates that about 14,000 vaccinated people have been hospitalized or died through September 7. Moreover, vaccinated people who test positive but do not end up with a serious case could still create massive disruptions for a workplace. If somebody tests positive in your factory, the odds are that production is going to take a break while everyone quarantines, even if they are vaccinated. The breakthrough cases will be a gift that keeps on giving.

The top-line numbers, however, do not tell the complete story. The vaccination rate for prime-age workers between 18 and 49 is only about 45 percent right now. One can imagine that these individuals have chosen not to have a vaccine because COVID-19, for the most part, has mild effects on most people in those age groups. So the question is, how will those people respond to the mandate?

First, they could all decide to get vaccinated, in which case, workplaces will be safer to some degree. In that case, one might even imagine a magnified positive effect. Labor-force participation has been stuck in neutral throughout this recovery, and that could be partly because many are wary of returning to work for fear of infection. Reduce that, and maybe labor supply and output go back up.

On the other hand, it does seem possible that many who have not been vaccinated have strong convictions against vaccines. With about 100 million workers in the relevant age category (according to the latest BLS data), and about 45 percent of them vaccinated, that means that about 55 million workers could be in the camp that has to either quit or go to work and get tested. If none of them gets vaccinated, that means that businesses are going to have to administer tests. Assuming tests cost $100 a piece, that is effectively a potential tax increase on America’s businesses of $5.5 billion a week, or a bit less than $300 billion per year. To put that in perspective, in 2019, the corporate income tax raised $230.2 billion, so the Biden test mandate could, if people chose testing over vaccination, be the equivalent of more than a doubling of the corporate tax.

Fine, a supporter of the policy might say, that just means everyone will choose to be vaccinated. Maybe so, but if the answer is somewhere in between, the new burden on America’s business is enormous. It therefore seems likely that the mandate will be largely negative for the economy, contracting supply and increasing inflation. If Democrats raise the corporate tax rate on top of this, there is no telling how bad things might get.

Kevin A. Hassett served in the Trump administration as a senior adviser to the president and is a former chairman of the Council of Economic Advisers. He is the senior adviser to National Review's Capital Matters, a new initiative focused on financial and economic coverage, and is the Vice President of the Lindsey Group.

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