Wage inequality and poverty effects of lockdown and social distancing in Europe

By Juan C. Palomino, Juan G. Rodríguez and Raquel Sebastian

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.

JEL classification: D33E24J21J31

Keywords: Wage inequalityPovertyTeleworkingSocial distancingEurope

https://doi.org/10.1016/j.euroecorev.2020.103564

European Economic Review
Available online 11 August 2020, 103564
In Press, Journal Pre-proof