What is the Economic Impact of the COVID-19 Vaccine Manufacturing Process?

2020 has been an incredibly challenging year for most of the world with seemingly very few bright spots to focus on. The emergence of COVID-19 has dramatically altered the way we live, perhaps permanently. Coronavirus-motivated mask mandates, regional shutdowns, capacity restrictions, and social distancing brought about economic uncertainty. The most commonly cited hope for a return to normalcy has been the widespread availability of a vaccine. Due to the fast-tracking of vaccine trials and significant government support, several effective vaccines appear to be on the horizon as we head into 2021. 

The public health benefit is straight-forward, however the economy is a very important concern to many. Anticipating the vast impact across the economy is incredibly difficult due to the unpredictability of consumer confidence in the midst of the pandemic. Despite this unpredictability, the sizable economic impact of investment in the vaccine manufacturing process can be readily estimated with Input-Output Analysis. Using publicly available data to define input values, IMPLAN has performed an analysis of the effect of the Federal government’s spending on vaccine manufacturing.

Starting Point

On May 15, 2020, the Trump Administration announced Operation Warp Speed as the United States’ strategy to “produce and deliver 300 million doses of safe and effective (COVID-19) vaccines with the initial doses available by January 2021.” The plan directed nearly $10 billion to establish public-private partnerships focused on the development, manufacture, and distribution of a coronavirus vaccine. 

From that point on, funding allocations and status updates have been announced through the Department of Health & Human Services (HHS) and, specifically, the Biomedical Advanced Research and Development Authority (BARDA). Companies like Moderna, Johnson & Johnson (Janssen), Pfizer, and more received funding and support through BARDA. The production cost of the COVID-19 vaccines comes at an average cost of $46 per person. 

The ultimate goal of widespread vaccine availability is slowing the spread of the disease and achieving herd immunity. Herd immunity is reached when a significant portion of the community becomes immune to the disease. Reaching this protects the entire community, whether vaccinated or not. Experts believe that 70% of Americans (approximately 229 million people) will need to receive the vaccine in order to achieve herd immunity.

With 229 million people requiring vaccines at $46 per person, the Federal Government will invest approximately $10,664,620,000 in vaccine manufacturing. This $10.6 billion is the direct output of the pharmaceutical preparation manufacturing industry and is the base figure for the IMPLAN analysis. 

Setting Up the Analysis

Establishing an industry output value provided the starting point for an output event analysis. However, due to the investment from the Fed and the differentiation in the activities related to the production of the vaccine, multiple caveats needed to be accounted for. 

Using 2019 U.S. data, IMPLAN economists performed an Analysis-by-Parts with an Industry spending pattern event for the Pharmaceutical preparation manufacturing industry as well as a Labor Income event. Analysis-by-parts is an impact modeling technique by which the individual components of an impact are modeled separately using multiple Events of specific types instead of a single Industry Event. Industry spending patterns are the established manner of spending on goods and services, but excluding labor, within an industry. Frequently, modifying the spending pattern and performing Analysis-by-parts go hand-in-hand. 

To account for the deviations in this pharmaceutical manufacturing process from the norm, two edits were made to the spending pattern and one to the results. With the government purchasing vaccines directly from the producer without wholesaler involvement, spending in the management of companies and enterprises and wholesale drugs industries was set to zero. Additionally, there are no direct taxes or profits included in the impact results.

Results

According to the IMPLAN analysis, production of the COVID-19 vaccine generates $32.3 billion in economic impact and supports 88,179 jobs. The $10.6 billion dollar investment by the Federal Government creates ripple effects throughout the economy and supports a large portion of output within the supply chain.

Vaccine Production Economic Impact

The total economic impact is split into 3 levels of effects: direct, indirect, and induced. Direct effects are the initial effects attributed to the vaccine production industry activity. Indirect effects stem from business to business purchases in the supply chain. Induced effects stem from household spending of income earned by workers in the vaccine production industry and its supply chain. 

Results are expressed in terms of employment or dollar figures. Employment is not necessarily defined as new employees, but as annual average count of full-time, part-time, and seasonal employment supported. Output is the value of industry production. Impacts are broken down further into multiple components like Labor Income, Value Added, and Intermediate Inputs. Labor Income represents all forms of employment income, including wages, benefits, and proprietor income. Value Added is the measure of contribution to Gross Domestic Product (GDP). Intermediate Inputs are purchases such as energy, materials, and services that are used for production. These values provide greater insight into the complete impact of any analyzed economic activity.

Takeaways

In 2019, the pharmaceutical preparation manufacturing industry had a total output of $284 billion in the U.S. In this massive industry, the $10.6 billion in direct output from the manufacturing of the coronavirus vaccine (at a herd immunity quantity of 229 million) represents a mere 4% of total industry output. 

While that output number may appear underwhelming in the context of the industry total, the spending on intermediate inputs is larger than many industries. This results in considerable indirect effects, meaning the investment in the COVID-19 vaccine manufacturing process supports other industries throughout the country in a big way. The industries that are most supported in terms of output are Medicinal and botanical manufacturing, Petrochemical manufacturing, Other basic organic chemical manufacturing (eg. formaldehyde), and Pharmaceutical preparation manufacturing (eg. antibiotics).

Additional figures of note are the employment values resulting from this impact. Employment figures represent jobs supported by an activity. In many cases employment figures do not represent new jobs, however approximately ⅙ of the 6,759 jobs associated with the direct vaccine manufacturing activity would likely be new hires.

The analysis operates on the assumption that all production will be domestic. It is important to note that the results of this analysis do not take into consideration any associated opportunity costs. However, they do provide a portrait of the economic impact of one activity in the overall strategy outlined in Operation Warp Speed. With a little more than a $10 billion dollar investment in coronavirus vaccine manufacturing, nearly 90,000 jobs and over $32 billion in economic output is supported throughout the economy. In the midst of a dark and difficult year, the rapid development of the COVID-19 vaccine offers a potential light at the end of the long tunnel that has been 2020.