Lockdown measures will ‘worsen inequality’ within and between countries, study says

A closed shop during lockdown

Social distancing and lockdown measures designed to combat the spread of COVID-19 could create a ‘sizeable’ increase in poverty and inequality across Europe, according to new analysis.

Researchers from Oxford University and Universidad Complutense de Madrid looked at the capacity of individuals in 29 European countries to work remotely and calculated the potential impact of lockdown on wages and inequality levels.

They found that lockdown measures will lead to ‘substantial and uneven wage losses across the board’, as well as rising poverty levels. Inequality will worsen within and – to a lesser extent – between countries.

The paper is published in the journal European Economic Review.

Study author Dr Juan Palomino, of Oxford’s Department of Social Policy and Intervention and Institute for New Economic Thinking, said: ‘The lockdown and partial closure of economic activities were crucial to slow the pandemic and save lives, but there is no doubt that the economic impact of COVID-19 has been dramatic.

‘Our findings indicate that the burden of the pandemic will be disproportionately borne by low-wage earners which, in the absence of compensating policies, will significantly increase poverty and inequality across Europe.’

To aid their analysis, the researchers produced a ‘lockdown working ability’ index to assess the capacity of people in a broad range of occupations to work remotely (or ‘telework’) during lockdown – from key workers such as healthcare staff whose activities would be unchanged to those, such as hospitality workers, who would not be able to work at all.

They found that:

•    Countries in Eastern and Southern Europe are less well-placed for continuing activities during lockdown.
•    Women are on average less affected in their jobs than men.
•    Temporary and part-time workers are in general worse-prepared than their permanent and full-time counterparts.
•    There is a strong positive relationship between the level of education and the capacity to work under a lockdown in all European countries.
•    Teleworking capability is strongly correlated with higher wages both across occupations and across average levels by country.

Under the most conservative simulated scenario – a lockdown of two months – the researchers estimate an average wage loss of 10% for poor workers across Europe and an increase in the headcount poverty index (a measure of the proportion of people in a given area who live below the poverty line) of 4.9 percentage points on average. The Gini coefficient (a measure of income inequality) is estimated to increase by 3.5% on average.

Adding a six-month period of ‘de-escalation’ in lockdown measures raises these figures to 16.2%, 9.4 and 7.3% on average across Europe. Further analysis shows that between-countries inequality will increase in Europe between 2.5% and 4%, while within-countries inequality will increase between 5% and 12.1%. The researchers find a greater increase of both poverty and inequality in Eastern and Southern Europe than in Northern and Central Europe.

Dr Palomino added: ‘Our analysis reveals that the lockdown and de-escalation periods will potentially increase poverty and inequality sizeably in all European countries, even without accounting for second-round effects. Given that early relaxation of containment measures could have devastating effects for the health of citizens, we advocate for public policies that alleviate the distributional consequences that the lockdown may otherwise have.’

The paper ‘Wage inequality and poverty effects of lockdown and social distancing in Europe’ is published in European Economic Review and written by Juan C Palomino (University of Oxford), Juan G Rodríguez and Raquel Sebastian (both Universidad Complutense de Madrid).