COVID-19 lockdown led to an unprecedented increase in inequality

Type Working Paper
Title COVID-19 lockdown led to an unprecedented increase in inequality
Publication (Day/Month/Year) 2021
The COVID-19 pandemic has affected households across the globe due to the health impacts but also through indirect socioeconomic effects as a result of the additional stress on the health systems, implications of the lockdowns and other policy measures undertaken by governments. Moreover, there is evidence that these impacts are associated with socioeconomic characteristics of households and could lead to an increase in inequality and poverty. In this paper, we conduct a first assessment based on household surveys in a large set of countries and analyze the determinants of income shocks at the household-level and macroeconomic inequality implications. While the average income losses of on average 4% but up to 27% are already high (similar to GDP losses in 2020 of on average 6% in our sample), we find an even more striking increase in inequality, of up to several points (1.2 points on average) of the typically very flat Gini index. Across countries, we find that on average an additional one percentage point loss in GDP was associated with an increase in the Gini by one percentage point. Analyzing the determinants of the income shock, we find strong evidence of heterogeneity with higher likelihood of income shocks for poorer, female-led, and less-educated households. The results indicate that we are experiencing an unprecedented crisis also in terms of economic inequality. The policy response to limit the macroeconomic repercussions therefore should explicitly include reducing inequality. Otherwise, a rebuilt macro-economy, will exhibit a much higher degree of social and economic inequality that are likely to persist.

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