Wage Inequality and Poverty Effects of Lockdown and Social Distancing in Europe

41 Pages Posted: 2 Jun 2020 Last revised: 28 Jan 2021

See all articles by Juan C. Palomino

Juan C. Palomino

Institute for New Economic Thinking and Department of Social Policy and Intervention - University of Oxford

Juan Gabriel Rodriguez

Universidad Complutense de Madrid (UCM) - Instituto Complutense de Análisis Económico | ICAE

Raquel Sebastian

Universidad Complutense de Madrid (UCM) - Department of Fundamentals of Economic Analysis I (Economic Analysis)

Date Written: July 30, 2020

Abstract

Social distancing and lockdown measures taken to contain the spread of COVID-19 may have distributional economic costs beyond the contraction of GDP. Here we evaluate the capacity of individuals to work under a lockdown based on a Lockdown Working Ability index which considers their teleworking capacity and whether their occupation is essential or closed. Our analysis reveals substantial and uneven potential wage losses across the distribution all around Europe and we consistently find that both poverty and wage inequality rise in all European countries. Under four different scenarios (2 months of lockdown and 2 months of lockdown plus 6 months of partial functioning of closed occupations at 80%, 70% and 60% of full capacity) we estimate for 29 European countries an average increase in the headcount poverty index that goes from 4.9 to 9.4 percentage points and a mean loss rate for poor workers between 10% and 16.2%. The average increase in the Gini coefficient ranges between 3.5% to 7.3% depending on the scenario considered. Decomposing overall wage inequality in Europe, we find that lockdown and social distance measures produce a double process of divergence: both inequality within and between countries increase.

Keywords: wage inequality; poverty; teleworking; social distancing; Europe

JEL Classification: D33, E24, J21, J31

Suggested Citation

Palomino, Juan C. and Rodriguez, Juan Gabriel and Sebastian, Raquel, Wage Inequality and Poverty Effects of Lockdown and Social Distancing in Europe (July 30, 2020). Juan C. Palomino, Juan G. Rodrí­guez, Raquel Sebastian, Wage inequality and poverty effects of lockdown and social distancing in Europe, European Economic Review, Volume 129, 2020, 103564, ISSN 0014-2921, https://doi.org/10.1016/j.euroecorev.2020.103564 https://www.ncbi.nlm.nih.gov/pmc/artic, Available at SSRN: https://ssrn.com/abstract=3615615 or http://dx.doi.org/10.2139/ssrn.3615615

Juan C. Palomino

Institute for New Economic Thinking and Department of Social Policy and Intervention - University of Oxford ( email )

Juan Gabriel Rodriguez (Contact Author)

Universidad Complutense de Madrid (UCM) - Instituto Complutense de Análisis Económico | ICAE ( email )

Pozuelo, MADRID 28260
Spain

HOME PAGE: http://https://sites.google.com/site/juangabr71/

Raquel Sebastian

Universidad Complutense de Madrid (UCM) - Department of Fundamentals of Economic Analysis I (Economic Analysis) ( email )

Campus de Somosaguas
Madrid
Spain

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