COVID-19 and economic inequality: short-term impacts with long-term consequences

This paper examines the short-term implications of the COVID-19 pandemic for inequality in developing countries. The analysis takes advantage of high-frequency phone survey data collected by the World Bank to assess the distributional impacts of the pandemic through the channels of job and income losses, food insecurity, and children’s education in the early days of the pandemic and subsequent period of economic recovery leading up to early 2021. It also introduces a methodology for estimating changes in income inequality due to the pandemic by combining data from phone surveys, pre-pandemic household surveys, and macroeconomic projections of sectoral growth rates. The paper finds that the pandemic had dis-equalizing impacts both across and within countries. Even under the assumption of distribution-neutral impacts within countries, the projected income losses are estimated to be higher in the bottom half of the global income distribution. Within countries, disadvantaged groups were more likely to have experienced work and income losses initially and are recovering more slowly. Inequality simulations suggest an increase in the Gini index for 29 of 34 countries in the sample, with an average increase of about 1 percent. Although these short-term impacts on inequality appear to be small, they suggest that projections of global poverty and inequality impacts of COVID-19 under the assumption of distribution-neutral changes within countries are likely to underestimate actual impacts. Finally, the paper argues that the overall inequality impacts of COVID-19 could be larger over the medium-to-long term on account of a slow and uneven recovery in many developing countries, and disparities in learning losses during pandemic-related school closures, which will likely have long-lasting effects on inequality of opportunity and social mobility.