How Pandemics Leave the Poor Even Farther Behind

IMF Blog, May 11, 2020

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The COVID-19 crisis is described as "the greatest economic calamity since the Great Depression."
In January, the IMF expected global income to grow 3 percent; it is now forecast to fall 3 percent.
A recent poll of top economists found that the vast majority felt the COVID-19 pandemic will worsen inequality, in part through its disproportionate impact on low-skilled workers.

Five major events analyzed: SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016).
Distributional effects are traced in the five years following each event.

The Gini coefficient (based on net incomes, i.e., market incomes after taxes and transfers) has increased steadily in the aftermath of these events.
After five years, the net Gini has gone up by nearly 1.5 percent.
This increase occurs despite government redistribution efforts to mitigate pandemic effects.

Pandemics have disparate impacts on employment by educational attainment (an indicator of skill levels).
Relative to population, the employment of those with advanced levels of education is scarcely affected.
The employment of those with only basic levels of education falls sharply, by more than 5 percent at the end of five years.
Long-lasting effects arise from job loss, lower remittances, and diminished employment prospects.

Policies must pay specific attention to preventing long-term damage (or "scarring") to the livelihoods of the least advantaged in society.
Without strenuous and targeted attempts, inequality is likely to increase; inequality was already "one of the most complex and vexing challenges in the global economy," in the words of the IMF’s Managing Director.
Concrete policy measures highlighted:
- Access to sick leave, unemployment benefits, and health benefits, especially for poorer segments who lack a savings cushion.
- A "New Deal" in sectors and regions with pervasive informal work and self-employment and scant social protection systems.
- Expanding social assistance systems and introducing new transfers.
- Boosting public work programs to offer job opportunities.
- Providing financing opportunities to sustain employment.
- Progressive tax measures (for example, a "solidarity surcharge") as part of the policy mix.
Policymakers should use the opportunity to make fundamental changes so that future shocks (including from climate change) encounter stronger risk-sharing and social assistance mechanisms to better protect the most vulnerable.

Source: How Pandemics Leave the Poor Even Farther Behind (IMF blog), Davide Furceri, Prakash Loungani, Jonathan D. Ostry, May 11, 2020.