## How COVID-19 Will Increase Inequality in Emerging Markets and Developing Economies

_IMF Blog, October 29, 2020_

## Source details

**Canonical URL:** [How COVID-19 Will Increase Inequality in Emerging Markets and Developing Economies](https://www.imf.org/en/blogs/articles/2020/10/29/blog-how-covid-19-will-increase-inequality-in-emerging-markets-and-developing-economies)

## Other formats

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## Bibliographic details
- Authors: Gabriela Cugat, Futoshi Narita
- Published: October 29, 2020

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### Overview
- Authors: Gabriela Cugat, Futoshi Narita
- Date: October 29, 2020
- Summary: Emerging markets and developing economies made sustained gains in poverty reduction and life expectancy in the two decades before COVID-19, but many struggled to reduce income inequality, faced high shares of inactive youth, wide inequality in education, and large gender gaps in economic opportunities. The COVID-19 crisis risks reversing much of the progress and widening the gap between rich and poor.

### Impact of where you work
- Key facts used to estimate effect on inequality:
  - Ability to work from home is lower among low-income workers than for high-income earners.
  - Sectors with activities more likely to be performed from home experienced smaller employment reductions (evidence from the United States).
- Implication:
  - Lower-income workers were less likely to be able to work from home and more likely to lose their jobs, worsening the income distribution.

### Methodology and distributional effect
- Approach:
  - Use the IMF’s GDP growth projections for 2020 as a proxy for aggregate decrease in income.
  - Distribute this loss across income brackets in proportion to their ability to work from home.
  - Compute a post-COVID summary measure of income distribution (Gini coefficient) for 2020 for 106 countries and compute the percent change.
- Interpretation of Gini:
  - The higher the Gini coefficient, the greater the inequality, with high-income individuals receiving much larger percentages of total income.
- Findings:
  - The estimated effect from COVID-19 on the income distribution is much larger than that of past pandemics.
  - The analysis shows that the average Gini coefficient for emerging market and developing economies will rise to 42.7, which is comparable to the level in 2008.
  - The impact would be larger for low-income developing countries despite slower progress since 2008.

### Welfare implications
- Welfare measure:
  - Combines information on consumption growth, life expectancy, leisure time, and consumption inequality (goes beyond GDP).
- Historical change:
  - From 2002 to 2019, emerging markets and developing economies enjoyed welfare growth of almost 6 percent, which is 1.3 percentage points higher than per capita real GDP growth.
  - The increase was mostly due to improvements in life expectancy.
- Pandemic effect:
  - The pandemic could reduce welfare by 8 percent in emerging markets and developing countries.
  - More than half of this reduction stems from the excess change in inequality as a result of a person’s ability to work from home.
  - These estimates do not reflect any income redistribution measures after the pandemic, meaning policy actions can dampen the effect on inequality and welfare.

### Policy recommendations
- Support labor market transitions:
  - Invest in retraining and reskilling programs to boost reemployment prospects for adaptable workers whose job duties may see long-term changes.
- Expand digital and financial inclusion:
  - Expand access to the internet and promote financial inclusion for an increasingly digital world of work.
- Strengthen social insurance and leave policies:
  - Relax eligibility criteria for unemployment insurance and extend paid family and sick leave to cushion job impacts.
- Protect social assistance:
  - Maintain social assistance in the form of conditional cash transfers, food stamps, and nutrition and medical benefits for low-income households; avoid premature withdrawal.
- Rationale:
  - These measures are essential for keeping the inequality gap from widening further and for preventing decades of hard-won gains from being lost.

### Collaboration note
- The blog draws on research conducted under a research collaboration on macroeconomic policy in low-income countries supported by the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO).
- The views expressed do not necessarily represent the views of the FCDO.

*Source: IMF blog post “How COVID-19 Will Increase Inequality in Emerging Markets and Developing Economies,” October 29, 2020.*

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## References

- [عربي](https://www.imf.org/ar/News/Articles/2020/10/29/blog-how-covid-19-will-increase-inequality-in-emerging-markets-and-developing-economies)
- [日本語,](https://www.imf.org/ja/News/Articles/2020/10/29/blog-how-covid-19-will-increase-inequality-in-emerging-markets-and-developing-economies)
- [Português](https://www.imf.org/pt/News/Articles/2020/10/29/blog-how-covid-19-will-increase-inequality-in-emerging-markets-and-developing-economies)
- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020)
- [study](https://www.imf.org/en/Publications/WP/Issues/2020/06/12/Who-will-Bear-the-Brunt-of-Lockdown-Policies-Evidence-from-Tele-workability-Measures-Across-49479)

_Source: https://www.imf.org/en/blogs/articles/2020/10/29/blog-how-covid-19-will-increase-inequality-in-emerging-markets-and-developing-economies_