Free DP Download 30 July 2021 - Will COVID-19 Have Long-Lasting Effects on Inequality? Evidence from Past Pandemics
PAST PANDEMICS SUGGEST COVID-19 WILL HAVE LONG-LASTING EFFECTS ON INEQUALITY
WILL COVID-19 HAVE LONG-LASTING EFFECTS ON INEQUALITY? Evidence from Past Pandemics
Davide Furceri, Prakash Loungani, Jonathan D. Ostry, Pietro Pizzuto
CEPR Discussion Paper No. 16122 | May 2021
Past pandemics, even though much smaller in scale, have led to increases in the Gini coefficient, raised the income shares of higher-decile income groups, and lowered the employment-to-population ratio of those with basic education compared to those with higher education. New evidence suggests that the distributional consequences from the current Covid-19 pandemic may be larger than those flowing from historical pandemics, and larger than those following typical recessions and financial crises.
These are among the main findings of a recent CEPR paper by Davide Furceri, Prakash Loungani, Jonathan D. Ostry and Pietro Pizzuto, which demonstrates the impact of major epidemics from the past two decades on income distribution. Past Pandemics have:
- Led to increases in the Gini coefficient:
- Pandemics lead to a persistent increase in inequality with a peak effect of about 0.4 five years after the pandemic—that is an average increase of 1.1 percent.
- Raised the income share of higher-income deciles:
- The impact is to raise the shares of the upper income quintile and reduce those of the lower-income quintile. the share of income going to the top two deciles is 46% on average; five years after the pandemic, this share increases to nearly 48%. The share of income going to the bottom two deciles is 6%; five years after the pandemic, this share falls to 5.5%.
The authors demonstrate that the distributional consequences from the current pandemic are likely to be larger than those flowing from the historical pandemics, and larger than those following typical recessions and financial crises. In the absence of long-lasting supportive policies to protect the vulnerable, the pandemic could end up exerting a significant impact on inequality.
- Lowered the employment-to-population ratio for those with basic education compared to those with higher education:
- Those with non-basic levels of education are scarcely affected, whereas the employment to population ratio of those with basic levels of education falls significantly, by more than 5% in the medium term.
You can also listen to a podcast where Jonathan Ostry discusses the paper's findings with CEPR's Tim Phillips