The possibility of a worldwide influenza pandemic (e.g., the avian flu) in the near future is of growing concern for many countries around the globe. The World Bank estimates that a global influenza pandemic would cost the world economy $800 billion and kill tens of millions of people.^{[ 1 ]} Researchers at the U.S. Centers for Disease Control and Prevention calculate that deaths in the U.S. could reach 207,000 and the initial cost to the economy could approach $166 billion, or roughly 1.5 percent of the GDP.^{[ 2 ]} Long-run costs are expected to be much greater. The U.S. Department of Health and Human Services paints a more dire picture—up to 1.9 million dead in the U.S. and initial economic costs near $200 billion.^{[ 3 ]}

While researchers and public officials can only speculate on the likelihood of a global influenza pandemic, many of the worst-case scenario predictions for a current pandemic are based on the global influenza pandemic of 1918, which killed 675,000 people in the U.S. (nearly 0.8 percent of the 1910 population) and 40 million people worldwide from the early spring of 1918 through the late spring of 1919.^{[ 4 ]} In all of recorded history, only the Black Death that occurred throughout Europe from 1348–51 is estimated to have killed more people (roughly 60 million) over a similar time period.^{[ 5 ]}

The years 1918 and 1919 were difficult not only as a result of the influenza pandemic; these years also marked the height of U.S. involvement in World War I. Given the magnitude and the concurrence of both the influenza pandemic and World War I, one would expect volumes of research on the economic effects of each event. Although significant literature on the economic consequences of World War I does exist, the scope of research on the economic effects of the 1918 influenza pandemic is scant at best. Most research has focused on the health and economic outcomes of descendants of pandemic survivors and the mortality differences across socioeconomic classes.^{[ 6 ]} Certainly, an event that caused 40 million worldwide deaths in a year should be closely examined not only for its historical significance, but also for what we can learn in the unfortunate chance the world experiences another influenza pandemic.

This report discusses some of the economic effects of the 1918 influenza pandemic in the U.S. Evidence of the effects of the pandemic on business and industry is obtained from newspaper articles printed during the pandemic, with most of the articles appearing in newspapers from the Eighth Federal Reserve District cities of Little Rock, Arkansas, and Memphis, Tennessee. Newspaper articles from the fall of 1918 were used because of the almost complete absence of economic data from the era, such as data on income, employment, sales and wages. This absence of data, especially at local levels (e.g., city and county) is a likely reason for the scarcity of economic research on the subject, though several studies that have used available economic data are reviewed here and nicely complement the information obtained from newspaper articles.

Although the influenza pandemic occurred nearly 90 years ago [from 2007] in a world that was much different than today, the limited economic data and more readily available mortality data from the time of the event can be used to make reasonable inferences about economic and social consequences of a modern-day pandemic.

Overview of the 1918 Influenza Pandemic

The influenza pandemic in the U.S. occurred in three waves during 1918 and 1919.^{[ 7 ]} The first wave began in March 1918 and lasted throughout the summer of 1918. The more devastating second and third waves (the second being the worst) occurred in the fall of 1918 and the spring of 1919. According to one researcher:

“Spanish influenza moved across the U.S. in the same way as the pioneers had, for it followed their trails which had become railroads…the pandemic started along the axis from Massachusetts to Virginia…leaped the Appalachians…positioned along the inland waterways…it jumped clear across the plains and the Rockies to Los Angeles, San Francisco and Seattle. Then, with secure bases on both coasts...took its time to seep into every niche and corner of America.”^{[ 8 ]}

But the pandemic’s impact on communities and regions was not uniform across the country. For example, Pennsylvania, Maryland and Colorado had the highest mortality rates, but these states had very little in common. Arguments have been made that mortality rates were lower in later-hit cities because officials in these cities were able to take precautions to minimize the impending influenza, such as closing schools and churches and limiting commerce. The virulence of the influenza, like a typical influenza, weakens over time, so the influenza that struck on the West Coast was somewhat weaker than when it struck the East Coast. But these reasons cannot completely explain why some cities and regions experienced massive mortality rates while others were barely hit with the influenza. Much research has been conducted over the past decades to provide insights into why the pandemic had such different effects on different regions of the country.^{[ 9 ]}

The global magnitude and spread of the pandemic was exacerbated by World War I, which itself is estimated to have killed roughly 10 million civilians and 9 million troops.^{[ 10 ]} Not only did the mass movement of troops from around the world lead to the spread of the disease, but tens of thousands of Allied and Central Power troops also died as a result of the influenza pandemic rather than combat.^{[ 11 ]} Although combat deaths in World War I did increase the mortality rates for participating countries, civilian mortality rates from the influenza pandemic of 1918 were typically much higher. For the U.S., estimates of combat-related troop mortalities are about one-tenth that of civilian mortalities from the 1918 influenza pandemic.

Mortality rates from a typical influenza tend to be the greatest for the very young and the very old. What made the 1918 influenza unique was that mortality rates were the highest for the segment of the population aged 18 to 40, and more so for males than females of this age group. In general, death was not caused by the influenza virus itself, but by the body’s immunological reaction to the virus. Individuals with the strongest immune systems were more likely to die than individuals with weaker immune systems.^{[ 12 ]} One source reports that out of 272,500 male influenza deaths in 1918, nearly 49 percent were aged 20 to 39, whereas only 18 percent were under age 5 and 13 percent were over age 50.^{[ 13 ]} The fact that males aged 18 to 40 were the hardest hit by the influenza had serious economic consequences for the families that had lost their primary breadwinner. As discussed later in the report, the significant loss of prime working-age employees also had economic consequences for businesses.

Despite the severity of the pandemic, it is reasonable to say that the influenza of 1918 has almost been forgotten as a tragic event in American history. This is not good, as learning from past pandemics may be the only way to reasonably prepare for any future pandemics. Several factors may explain why the influenza pandemic of 1918 has not received a notable place in U.S. history.^{[ 14 ]}

First, the pandemic occurred at the same time as World War I. The influenza struck soldiers especially hard, given their living conditions and close contact with highly mobile units. Much of the news from the day focused on wartime events overseas and the current status of America troops. Thus, the pandemic and World War I were almost seen as one event rather than two separate events. Second, diseases of the day like polio, smallpox and syphilis were incurable and a permanent part of society. Influenza, by contrast, swept into communities, killed members of the population, and was gone. Finally, unlike polio and smallpox, no famous people of the era died from the influenza; thus there was no public perception that even the politically powerful and rich and famous were not immune from the virus.

Although the influenza pandemic of 1918 may be an event that has been relegated to the shadows of American history, the event had significant economic effects. The fact that most of these effects were relatively short-lived does not make them less important to study, especially given the non-zero probability of a future influenza pandemic.

While not a primary focus of this report, the influenza pandemic of 1918 resulted in great human suffering in select areas, as increasing body counts overwhelmed city and medical officials (partly exacerbated by personnel absences from the war). In some cities, like Philadelphia, bodies lay along the streets and in morgues for days, similar to medieval Europe during the Black Death. In light of the potential economic turmoil and human suffering, an understanding of state and federal government response to the 1918 pandemic may also provide some light into what, if anything, government at any level can do to prevent or minimize a modern-day pandemic.

Economic Effects of the 1918 Influenza Pandemic

This section of the report sheds light on some economic effects of the 1918 influenza pandemic. As mentioned earlier, the greatest disadvantage of studying the economic effects of the 1918 influenza is the lack of economic data. There are some academic studies that have looked at the economic effects of the pandemic using available data, and these studies are reviewed later. Given the general lack of economic data, however, a remaining source for information on (some) economic effects of the 1918 pandemic is print media.

Newspapers in the Eighth Federal Reserve District cities of Little Rock and Memphis that were printed in the fall of 1918 were researched for information on the effects of the influenza pandemic in these cities. Piecing together anecdotal information from individual cities can provide a relatively good picture of the general effects of the pandemic. These general effects in 1918 can be used to extrapolate to the potential economic effects of a modern-day pandemic.

The 1918 Influenza Pandemic in the News

This section presents headlines and summaries from articles appearing in two newspapers in Eighth Federal Reserve District cities: The Arkansas Gazette (Little Rock) and The Commercial Appeal (Memphis). Articles listing the number of sick or dead from the influenza appeared almost daily in these newspapers and other papers, as well—St. Louis and Louisville, for example. Also appearing frequently were articles on church, school and theater closings, as well as dubious remedies and cures for the influenza.^{[ 15 ]} However, articles that described the influenza’s effects on the local economy were far less numerous. The several articles that appeared in the fall of 1918 that did discuss the economic impact of the influenza are summarized below.

Little Rock, Arkansas

“How Influenza Affects Business,” The Arkansas Gazette, October 19, 1918:

• Merchants in Little Rock say their business has declined 40 percent. Others estimate the decrease at 70 percent.
• The retail grocery business has been reduced by one-third.
• One department store, which has a business of $15,000 daily ($200,265 in 2006 dollars), is not doing more than half that.
• Bed rest is emphasized in the treatment of influenza. As a result, there has been an increase in demand for beds, mattresses and springs.
• Little Rock businesses are losing $10,000 a day on average ($133,500 in 2006 dollars). This is actual loss, not a decrease in business that may be covered by an increase in sales when the quarantine order is over. Certain items cannot be sold later.
• The only business in Little Rock in which there has been an increase in activity is the drug store.

Memphis, Tennessee

“Influenza Crippling Memphis Industries,” The Commercial Appeal, October 5, 1918:

• Physicians report they are kept too busy combating the disease to report the number of their patients and have little time to devote to other matters.
• Industrial plants are running under a great handicap. Many of them were already short of help because of the draft.
• Out of a total of about 400 men used in the transportation department of the Memphis Street Railway, 124 men were incapacitated yesterday. This curtailed service.
• The Cumberland Telephone Co. reported more than a hundred operators absent from their posts. The telephone company asked that unnecessary calls be eliminated.

“Tennessee Mines May Shut Down,” The Commercial Appeal, October 18, 1918:

• Fifty percent decrease in production reported by coal mine operators.
• Mines throughout East Tennessee and Southern Kentucky are on the verge of closing down owing to the epidemic that is raging through the mining camps.
• Coalfield, Tennessee, with a population of 500, has “only 2 percent of well people.”

Survey of Economic Research

One research paper examines the immediate (short-run) effect of influenza mortalities on manufacturing wages in U.S. cities and states for the period 1914 to 1919. The testable hypothesis of the paper is that influenza mortalities had a direct impact on wage rates in the manufacturing sector in U.S. cities and states during and immediately after the 1918 influenza. The hypothesis is based on a simple economic model of the labor market: A decrease in the supply of manufacturing workers that resulted from influenza mortalities would have had the initial effect of reducing manufacturing labor supply, increasing the marginal product of labor and capital per worker, and thus increasing real wages. In the short term, labor immobility across cities and states is likely to have prevented wage equalization across the states, and a substitution away from relatively more expensive labor to capital is unlikely to have occurred.^{[ 16 ]} The empirical results support the hypothesis: Cities and states having greater influenza mortalities experienced a greater increase in manufacturing wage growth over the period 1914 to 1919.

Another study explored state income growth for the decade after the influenza pandemic using a similar methodology.^{[ 17 ]} In their unpublished manuscript, the authors argue that states that experienced larger numbers of influenza deaths per capita would have experienced higher rates of growth in per capita income after the pandemic. Essentially, states with higher influenza mortality rates would have had a greater increase in capital per worker, and thus output per worker and higher incomes after the pandemic. Using state-level personal income estimates for 1919-1921 and 1930, the authors do find a positive and statistically significant relationship between statewide influenza mortality rates and subsequent state per capita income growth.

A recent paper explored the longer-term effect of the 1918 influenza.^{[ 18 ]} The author questions whether in-utero exposure to the influenza had negative economic consequences for individuals later in their lives. The study came about after the author reviewed evidence that suggested pregnant women who were exposed to the influenza in 1918 gave birth to children who had greater medical problems later in life, such as schizophrenia, diabetes and stroke. The author’s hypothesis is that an individual’s health endowment is positively related to his human capital and productivity, and thus wages and income.

Using 1960–80 decennial census data, the author found that cohorts in-utero during the 1918 pandemic had reduced educational attainment, higher rates of physical disability and lower income. Specifically, “(m)en and women show large and discontinuous reductions in educational attainment if they had been in utero during the pandemic. The children of infected mothers were up to 15 percent less likely to graduate from high school. Wages of men were 5 percent to 9 percent lower because of infection.”^{[ 19 ]}

Most of the evidence indicates that the economic effects of the 1918 influenza pandemic were short-term. Many businesses, especially those in the service and entertainment industries, suffered double-digit losses in revenue. Other businesses that specialized in health care products experienced an increase in revenues. Some academic research suggests that the 1918 influenza pandemic caused a shortage of labor that resulted in higher wages (at least temporarily) for workers, though no reasonable argument can be made that this benefit outweighed the costs from the tremendous loss of life and overall economic activity. Research also suggests that the 1918 influenza caused reductions in human capital for those individuals in-utero during the pandemic, therefore having implications for economic activity occurring decades after the pandemic.

Implications for a Modern-day Pandemic

The potential financial costs and death tolls from a modern-day influenza pandemic in the U.S. that were presented at the beginning of this report suggest an initial cost of several hundred billion dollars and the deaths of hundreds of thousands to several million people. The information presented in this report and information provided in two prominent publications on the 1918 influenza pandemic are now used to formulate a list of the likely economic effects of a modern-day influenza pandemic and possible ways to mitigate the severity of any future pandemic:

• Given the positive correlation between population density and influenza mortalities, cities are likely to have greater mortality rates than rural areas. Compared with 1918, however, urban and rural areas are more connected today—this may decrease the difference in mortality rates between cities and rural areas. Similarly, a greater percentage of the U.S. population is now considered urban (about 80 percent) compared with the U.S. population at the time of the pandemic (51 percent in 1920).
• Non-white groups as a whole have a greater chance of death because roughly 90 percent of all non-whites live in urban areas (compared with about 77 percent of whites). This correlates with lower-income individuals being more likely to die—non-white (excluding Asians) households have a lower median income ($30,858 in 2005) compared with white households ($50,784 in 2005).^{[ 20 ]} Similarly, only 10 percent of whites were below the poverty level in 2005 compared with more than 20 percent for various minority groups (except Asians).^{[ 21 ]}
• Urban dwellers are likely to have, on average, better physical access to quality health care, though nearly 19 percent of the city population in the U.S. has no health coverage compared with only 14 percent of the rural population.^{[ 22 ]} The question remains as to the affordability of health care and whether free-service health care providers, clinics and emergency rooms—the most likely choices for the uninsured—are able to handle victims of the pandemic.
• Health care is irrelevant unless there are systems in place to ensure that an influenza pandemic will not knock out health care provision and prevent the rapid disposal of the dead in the cities (as it did in Philadelphia, which was exacerbated by medical leaves during World War I). If medical staff succumbs to the influenza and facilities are overwhelmed, the duration and severity of the pandemic will be increased. In Philadelphia during the 1918 pandemic, “the city morgue had as many as ten times as many bodies as coffins.”^{[ 23 ]}
• A greater percentage of families with life insurance would mitigate the financial effects from the loss of a family’s primary breadwinner. However, life insurance is a normal good (positively correlated with income); so, low-income families are less likely to be protected with insurance than are higher-income families.^{[ 24 ]}
• Local quarantines would likely hurt businesses in the short run. Employees would likely be laid off. Families with no contact to the influenza may [also] experience financial hardships. To prevent spread, quarantines would have to be complete (i.e., no activity allowed outside of the home). Partial quarantines, such as closing schools and churches—but not public transportation or restaurants (as done in Philadelphia, St. Louis and Washington, D.C.)—would do little to stop the spread of influenza.
• Some businesses could suffer revenue losses in excess of 50 percent. Others, such as those providing health services and products, may experience an increase in business (unless a full quarantine exists). If the pandemic causes a shortage of employees, there could be a temporary increase in wages for remaining employees in some industries. This is less likely than in 1918, however, given the greater mobility of workers that exists today.
• Can we rely on local, state and federal governments to help in the case of a modern-day pandemic? Government has shown its inability to handle disasters in the past (e.g., Hurricane Katrina). Local preparedness by health departments and hospitals, volunteer services (e.g., Red Cross) and private businesses, and responsible actions of the population are likely to mitigate the effects of a modern-day influenza pandemic.

Final Thoughts

The influenza of 1918 was the most serious epidemic in the history of the U.S. Hundreds of thousands of people died and millions were infected with the highly contagious influenza virus. The possibility of a future influenza pandemic has focused research back to the 1918 pandemic as a foundational model for the likely effects of a modern-day influenza outbreak in the U.S. Despite the severity of the 1918 influenza, however, there has been relatively little research done on the economic effects of the pandemic. This report has provided a concise, albeit certainly not complete, discussion and analysis of the economic effects of the 1918 influenza pandemic based on available data and research.

The influenza of 1918 was short-lived and “had a permanent influence not on the collectivities but on the atoms of human society—individuals.”^{[ 25 ]} Society as a whole recovered from the 1918 influenza quickly, but individuals who were affected by the influenza had their lives changed forever. Given our highly mobile and connected society, any future influenza pandemic is likely to be more severe in its reach, and perhaps in its virulence, than the 1918 influenza despite improvements in health care over the past 90 years [as of 2007]. Perhaps lessons learned from the past can help mitigate the severity of any future pandemic.

Of course, mitigating a pandemic will require cooperation and planning by all levels of government and the private sector. Unfortunately, a 2005 report suggests that the U.S. is not prepared for an influenza pandemic.^{[ 26 ]} Although federal, state and local governments in the U.S. have started to focus on preparedness in recent years, it is fair to say that progress has been slow, especially at local levels of government.^{[ 27 ]} Different levels of governments have been relatively ineffective in coordinating a response to disasters in the past, whereas private charities and volunteer organizations like the American Red Cross often perform admirably and are often the first responders. Assuming that citizens want government to mitigate an influenza outbreak, there should be concern about government’s readiness and ability to protect citizens from a pandemic. Perhaps public education on flu mitigation, a greater reliance on charitable and volunteer organizations, and a dose of personal responsibility may be the best ways to protect Americans in the event of a future influenza pandemic.

The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of St. Louis or the Federal Reserve System.

Endnotes

^{[ 1 ]} Brahmbhatt, Milan. (September 23, 2005) “Avian Influenza: Economic and Social Impacts.” Speech. World Bank, Washington, D.C.

^{[ 2 ]} Meltzer, M.; Cox, N.; and Fukunda, K. (1999). “The Economic Impact of Pandemic Influenza in the United States: Priorities for Intervention.” Emerging Infectious Diseases, 5(5): 659-671.

^{[ 3 ]} U.S. Department of Health and Human Services. (2005). “HHS Pandemic Influenza Plan.” Washington, D.C.

^{[ 4 ]} Potter, C. (2001). “A History of Influenza.” Journal of Applied Microbiology, 91: 572-579. The influenza pandemic of 1918 was termed the “Spanish Flu” by the Allies of World War I because Spain had one of the worst early outbreaks of the disease, with nearly 8 million people infected by early 1918.

^{[ 5 ]} Bloom, David and Mahal, Ajay. (1997). “AIDS, Flu, and the Black Death: Impacts on Economic Growth and Well-Being.” In Bloom, David and Godwin, Peter, eds. The Economics of HIV and AIDS: The Case of South and Southeast Asia. Delhi: Oxford University Press, 22-52.

^{[ 6 ]} Keyfits, Nathan and Flieger, Wilhelm. (1968). World Population: An Analysis of Vital Data. Chicago: University of Chicago Press; Almond, Douglas. (2006). “Is the 1918 Influenza Pandemic Over? Long-Term Effects of In Utero Influenza Exposures in the Post-1940 U.S. Population.” Journal of Political Economy, 114, 672-712; Noymer, Andrew and Garenne, Michel. (2000). “The 1918 Influenza Epidemic’s Effects on Sex Differentials in Mortality in the United States.” Population and Development Review, 26(3), 565-581; Mamelund, Svenn- Erik. (2006). “A Socially Neutral Disease? Individual Social Class, Household Wealth and Mortality from Spanish Influenza in Two Socially Contrasting Parishes in Kristiania 1918-19.” Social Science and Medicine, 62, 923-940.

^{[ 7 ]} For much more information on the influenza pandemic, including its origins, see Barry, John M. (2004). The Great Influenza: The Epic Story of the Deadliest Plague in History. Penguin Group, New York; Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge UK.

^{[ 8 ]} Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge, pages 63-64.

^{[ 9 ]} Barry, John M. (2004). The Great Influenza: The Epic Story of the Deadliest Plague in History. Penguin Group, New York and Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge.

^{[ 10 ]} Source: Wikipedia.

^{[ 11 ]} Ayres, Leonard. (1919). The War With Germany: A Statistical Summary. Government Printing Office, Washington D.C.

^{[ 12 ]} Barry, John M. (2004). The Great Influenza: The Epic Story of the Deadliest Plague in History. Penguin Group, New York.

^{[ 13 ]} The 272,500 deaths are from a sample of about 30 states. See Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge, page 209.

^{[ 14 ]} Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge, pages 319-322.

^{[ 15 ]} Copies of all articles are available from the author, including articles from the St. Louis Post-Dispatch and the Louisville Courier-Journal.

^{[ 16 ]} The long-run effect of influenza and war mortalities on manufacturing wage growth is less clear. One popular growth model suggests that capital per worker will eventually fall (due to diminishing returns to capital) and therefore decrease wages. However, another growth model predicts capital per worker will continue to rise over time as a result of nondiminishing returns to capital, thereby increasing wages. Over time, there may have also been an opportunity for some degree of wage equalization across the states. It is also possible that the war and the pandemic decreased consumer confidence, investment and savings, and long-term income growth of households due to the death of households’ primary breadwinners. These factors would result in lower aggregate output and production, thereby decreasing the demand for labor and placing downward pressure on manufacturing wages.

^{[ 17 ]} Brainerd, Elizabeth and Siegler, Mark. (2003). “The Economic Effect of the 1918 Influenza Epidemic.” Discussion Paper 3791, Centre for Economic Policy Research.

^{[ 18 ]} Almond, Douglas. (2006) “Is the 1918 Influenza Pandemic Over? Long-term Effect of In Utero Influenza Exposure in the Post-1940 U.S. Population.” Journal of Political Economy, 114(4): 672-712.

^{[ 19 ]} Almond, Douglas. (2006) “Is the 1918 Influenza Pandemic Over? Long-term Effect of In Utero Influenza Exposure in the Post-1940 U.S. Population.” Journal of Political Economy, 114(4): 673.

^{[ 20 ]} U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2005, Table 1.

^{[ 21 ]} U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2005, Table 4.

^{[ 22 ]} U.S. Census Bureau. Income, Poverty, and Health Insurance Coverage in the United States: 2005, Table 8.

^{[ 23 ]} Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge, page 82.

^{[ 24 ]} Cummins, J. David and Mahul, Olivier. (June 2004). “The Demand for Insurance with an Upper Limit on Coverage.” Journal of Risk and Insurance, 71(2): 253-264.

^{[ 25 ]} Crosby, Alfred W. (2003). America’s Forgotten Pandemic: The Influenza of 1918. Cambridge University Press, Cambridge, page 323.

^{[ 26 ]} Infectious Diseases Society of America. “IDSA’s Principles for Actions Needed 25 to Prepare the U.S. to Effectively Respond to Interpandemic/Pandemic Influenza.” March 2005.

^{[ 27 ]} See www.pandemicflu.gov, a site managed by the U.S. Department of Health and Human Services. The lack of influenza vaccines, low production capacity, inadequate supply networks, slow government response and poor public education are cited as problems.