Pandemics and income inequality: a historical review

Abstract

This paper examines the effects of pandemics on income inequality, specifically those pandemics that claimed more than 100,000 lives. Given that pandemics are events that rarely occur, we have use data spanning over the last 100 years (1915-2017) and relating to four pandemics. The study includes four countries that had income inequality data covering that period. Using panel data methods-fixed effects and augmented mean group estimators-we found a significant effect of these pandemics on declining income inequality. The study argues that based on the characteristics of the COVID-19 pandemic, namely that fatalities are highly concentrated in older age groups, we can neither expect a labor scarcity nor a sharp decline in productivity; however, we could expect a reduction in consumption, the possibility of savings, high unemployment rates, and high public debt ratios. The ultimate effects of COVID-19 on inequality remain unclear so far, as some of its inherent characteristics push for an increase in inequality. In contrast, others push toward a narrowing of the income gap.

Supplementary information: The online version contains supplementary material available at 10.1007/s43546-021-00059-4.

Keywords: COVID-19; Factors model; Income inequality; Macro panel data; Pandemic.

Fig. 1

The effect of the Plague on labor supply

Fig. 2

The combined effect of the Plague on labor supply and productivity

Fig. 3

Land rent-wage rate ratio in Spain (1282–1850) [Data is from Álvarez-Nogal and De La Escosura (2013). Comments on the path of inequality are from Milanovic (2016)]