Economic Effects of the Spanish Flu (RBA 2020)

Paper summary: Economic Effects of the Spanish Flu – James Bishop, RBA, Bulletin, June 2020


There was an estimated 6% fall in real GDP per capita in 42 countries over the period 1918-21. In Australia, unemployment rose by 3 percentage points among union members, two-thirds of which was due to the illness, caring, etc, and one-third due to a lack of work. Australia’s GDP growth rose by 2.25% in 1918/19 and fell by 5.5% in 1919/20. The causes of these effects are difficult to discern given there were other factors at play, namely the removal of wartime stimulus and the influx of workers returning to the workforce after the war. Due to substantial differences in the Australian economy then and now, the relevance of comparisons between the effects of the two pandemics on the economy is questionable, despite similarity in public health measures used then and now.

Additional notes

  • The pandemic emerged in early 1918 and ended at the end of 1920. In Australia, it emerged in January 1919 and ended at the end of 1919.
  • Waves of the virus were dependent on social distancing measures/policies, which were similar to those used today
  • The pandemic most affected those aged 18-40. Typically, influenza viruses affect those aged 60+.
  • Economic effects of government social distancing policies could theoretically be positive or negative. Negative effects would be due to a reduction in economic activity, while positive effects could be due to coordination effects that reduce disruption.
  • The definition of unemployment for the purpose of official statistics was different then to now. Then, unemployment included those not looking for work, unavailable for work, or sick. Therefore, the unemployment rates reported in Australia during the Spanish Flu should be considered more of a reduction in the labour supply instead of a rise in unemployment. 
  • There are many differences between the economy then and now. Then there was:
    • A smaller share of workers in agriculture and manufacturing
    • Less globalisation
    • A pegged currency
    • More frequent IR disputes
    • Lower female labour force participation
    • Less work from home capacity
  • Due to these differences, considering the economic effects between then may not shed much light on the current pandemic.