What COVID-19 can mean for long-term inequality in developing countries - World Bank Group

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The COVID-19 pandemic hit amid high inequality and low social mobility in many developing economies and brought these inequalities into sharper focus. The pandemic also poses significant risks to long-term equity and social mobility , as we discuss in a recent paper, using evidence from past crises and early insights from data collected during this pandemic.

What history tells us: Pandemics are not good for inequality

A recent study on the effects of five pandemics between 2003 and 2016 finds that on average, income inequality in affected countries increased steadily over the five years following each event, with the effect being higher when the crisis led to contraction in economic activity, as is the case with COVID-19.

The historical estimates probably understate the potential long-term effects of COVID-19 , given the much larger income impacts of this pandemic. Five years after a pandemic is also too soon for the full impacts on inequality of opportunity and social mobility to emerge. Lower social mobility, or greater persistence of outcomes such as education and income across generations, holds back a society’s progress by perpetuating inequality, reducing economic growth and social cohesion over time.

What early evidence shows: COVID-19 is affecting the poorest the most, increasing inequality

Short-term projections by the World Bank and the International Monetary Fund suggest that extreme poverty worldwide and income inequality for low-income and emerging economies are likely to increase in 2020. Within countries, early data indicate that labor market impacts of the pandemic are strikingly unequal, varying with characteristics of jobs, workers and firms.  Data from the COVID-19 dashboard show that in most countries, college-educated workers are less likely to stop working than those with less education and women survey respondents are more likely to stop working than men. The rate of job losses was highest in industry and urban services, which tend to have jobs that are least amenable to working from home. Phone surveys of firms show that micro and small firms, relative to large firms, have a higher probability of falling into arrears. Thus, a temporary loss of revenues for these firms can turn into longer-term erosion of jobs and entrepreneurial capital, which disproportionately affects workers who are young, low-skilled or without access to capital.

Schooling disruptions are also more likely to affect the poorest most. In Ethiopia and Nigeria, for example, the richest 20% of households were much more likely to have children engaging in any learning activity after school closures than the bottom 20%.

What to expect in the future: Three reasons to be concerned about rising long-run inequality

Evidence from previous disasters suggests that not only can welfare impacts on the poorest households be larger, recovery after a shock can also be slower   (Figure 1). We currently see three causes for concern that, unless addressed, this pattern will play out for this crisis too.

Figure 1: Inequality and crises: a vicious cycle

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What COVID-19 can mean for long-term inequality in developing countries - World Bank Group
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