Will COVID-19 Have Long-Lasting Effects on Inequality? Evidence from Past Pandemics

IMF Working Papers, May 1, 2021

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Paper examines the impact of major epidemics from the past two decades on income distribution.
Authors: Davide Furceri, Prakash Loungani, Jonathan David Ostry, Pietro Pizzuto.
Date: May 1, 2021.
Core finding: pandemics in the sample, though much smaller in scale than COVID-19, have produced measurable distributional effects; evidence suggests COVID-19’s consequences may be larger than historical pandemics and larger than those following typical recessions and financial crises.

Income distribution effects observed after past pandemics:
- Increases in the Gini coefficient.
- Raised the income share of higher-income deciles.
- Lowered the employment-to-population ratio for those with basic education compared to those with higher education.
Comparative magnitude:
- The distributional consequences from the current pandemic (COVID-19) may be larger than those from the historical pandemics in the sample.
- The distributional consequences from COVID-19 may be larger than those following typical recessions and financial crises.

Subject areas: COVID-19, Financial crises, Health, Income, Income distribution, Income inequality, National accounts.
Keywords: COVID-19, Global, impact of pandemic, Income, Income distribution, Income inequality, income share, pandemic dummy regression, pandemic event, severity of the pandemic.
Sample period: major epidemics from the past two decades (as described in the paper).

Past pandemics have distributional impacts that disproportionately affect lower-educated workers and increase inequality measures.
Policymakers should note that COVID-19’s distributional effects may exceed those seen in prior epidemics and typical macroeconomic crises, implying a need for targeted policy responses to limit long-lasting increases in inequality.

Source: IMF Working Paper No. 2021/127