Morningstar - Q4 2020 - 54

products surpassed prewar levels.

0.5

Spotlight: World After COVID-19

Prewar

1945

1950

1955

1960

EXHIBIT 4

Women Join the Workforce The trend of increased female labor participation
started before WWII.
U.S. Female Labor Force Participation Rate
75%
59
50

More women joined the
workforce in the 1940s, but the
increase was not exceptional.

0
1890

1920

1950

1980

2010

Sources: Morningstar; Acemoglu, Autor, & Lyle (2004)7 citing Blau, Ferber, & Winkler (2002)8; U.S. Bureau of Labor Statistics.

Episode 3: Oil Price Shock of the 1970s
Real Oil Price ($bbl/rhs)
The oil price shock of the 1970s caused a temporary
120
period of very high oil prices. Unsurprisingly,
consumers responded to the higher prices by
sharply curtailing their demand. The question
90
relevant
to COVID-19's long-run impact is whether
consumers permanently reduced their demand
after the prices went back down.
60

1.7% from 1986 to 2000 ( EXHIB IT 5 ). Given that oil
World Oil Demand (mmbpd, lhs)
1940-1973 Trend
prices over the period were far closer to the
pre-1973 average than during the 1974 - 85 shock,100

one might have expected a solid amount of
76.49
catch-up growth as individuals returned to their
75
pre-1974 consumption patterns.

But that
catch-up did not occur. Why did demand
1974-85 Average
50
remain depressed? When gasoline demand fell
Real oil prices averaged $63 a barrel from 1974 to
markedly in the mid-1970s in response to higher
42.7oil
1985, up 250% from the average from 19651986-2000 Average
prices, average miles traveled saw only a slight
30
25
to 1973. This was a result of a series of supply-side
deceleration in growth. Therefore, the driver
of lower gasoline demand was rising fuel efficiency,
shocks, including the 1973 Arab oil embargo,
0the depletion of cheap oil sources in the U.S., and
0
which increased steadily from 1975 to 1990
1965
1970
1975
1980
1985
1990
1995 2000
due to consumer demand for better gas mileage
Iran's production collapse in the 1979 revolution.
Before these shocks, oil demand had been
and increases in government mandates.
growing at a brisk pace (7% average growth
from 1940 to 1973). Because of the surge in prices,
But wouldn't fuel efficiency fall as consumers
demand growth averaged merely 0.5% from
returned to buying vehicles more like
1974 to 1985.
those before the oil crisis? This didn't happen
for several reasons, owing mainly to sunk
costs. First, because of governmental inertia and
In 1986, an era of lower oil prices began: The
budding concerns about climate change, fuel
average real price of a barrel of oil from 1986 to
2000 was $32. Despite this, oil demand grew only
standards weren't relaxed when oil prices

fell. Enacting powerful legislation entails very
high political costs. It's time-consuming and
requires back-and-forth dealmaking, for example.
By the time oil prices fell, politicians had already
incurred these costs, so rolling back standards
was not worth it. Second, many of the
technologies developed to boost fuel efficiency
in this era were essentially sunk costs, such
as research and development and manufacturing
capabilities. Continued progress in these
technologies even allowed average fuel efficiency
to hold steady in the 1990s and 2000s as
consumers switched to buying heavier vehicles
such as SUVs and trucks.
Therefore, we believe that the demand for
fuel consumption was permanently reduced by
the oil shock.
Episode 4: 9/11 and U.S. Air Travel
The case of U.S. air travel after the Sept. 11,
2001, terrorist attacks could hold lessons
for the postpandemic world. After the attacks,
air travel was depressed for several years,
due principally to consumers' fear of another
attack. The analogy for the postpandemic
world is clear: Fear of the next pandemic could
lead to permanently lower air travel, as
well as lower demand in other industries (hotels,
entertainment, restaurants) in which social
distancing is a key issue. Additionally, there
is the question of whether the fall in air
travel after 9/11 caused consumers' habits to
permanently change (independently of
the effect of fear).

The short-term impact of 9/11 on U.S. air travel
was large ( EXHIB IT 6 ). Industry revenue
passenger miles (the standard way of gauging
airline industry volume) and the number
of passengers lagged real GDP in the years
after 9/11. According to a Gallup survey
conducted within a week of the attacks, 43%
of Americans said they were less willing
to fly on airplanes because of the attacks.
This number remained at about 30% throughout

7 Acemoglu, D., Autor, D., & Lyle, D. 2004. "Women, War, and Wages: The Effect of Female Labor Supply on the Wage Structure at Midcentury," Journal of Political Economy, Vol. 112, No. 3,
PP. 497-551.
8 Blau, F.D., Ferber, M.A., & Winkler, A.E. 2002. The Economics of Women, Men, and Work. Prentice Hall.

Morningstar Q4 2020

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