The impact of the COVID-19 pandemic
The severe impact of the COVID-19 pandemic is clearly seen in the numbers: more than 3.1 million deaths and rising, 120 million people pushed into extreme poverty, and a massive global recession. As suffering and poverty have risen, some data show an increase in another extreme: the wealth of billionaires.
With both extreme poverty and billionaire wealth on the rise, the pandemic’s effect on inequality may appear obvious. The reality is not as simple as you may think.
Consider first the global distribution of COVID-19 mortality itself. Using the concept of life years lost to the disease—estimated using ages at death and the residual life expectancies at those ages—we find that the mortality burden of the pandemic is positively correlated with national income per capita, despite the superior health and public prevention systems in rich countries (Ferreira and others 2021).
Although there is enormous variation at each income level—with Brazil’s mortality burden (adjusted by population) 1,000 times greater than Thailand’s, for example—there is nonetheless a very clear positive association. Richer countries suffer greater losses of life years per capita than poorer countries. Measurement error is likely substantial, with a number of poor countries, such as Burundi and Tanzania, clearly underreporting deaths, but the association is so strong that it is unlikely to be spurious. Among other things, it reflects the older age structure of the population in richer countries and an illness whose lethality is highly age-selective. Higher life expectancies, greater urbanization, and the pandemic’s spread along major trade routes also likely have played a role.
But what about the distribution of income, instead of mortality? How did global income inequality change during the pandemic? Well, global inequality in incomes can be understood in at least three ways: first is the question of what happened during COVID-19 to the distribution of GDP per capita among countries—labeled “Concept 1” global inequality by Branko Milanovic. In a recent paper, Nobel laureate Angus Deaton shows that, on average, richer countries also experienced larger economic contractions than poorer countries in 2020 (Deaton 2021). And although by itself this result does not necessarily imply a decline in inequality between countries, it turns out that the actual pattern of income declines did indeed lead to a reduction in (unweighted) inequality between countries during 2020, whether it is measured by the Gini coefficient, the Theil index, or the coefficient of variation. This represents a continuation of the trend since the turn of the millennium, when Concept 1 global inequality began to fall, owing in large part to the rise of China and India. But Deaton argues that, if anything, the pandemic accelerated the decline.
This calculation takes countries as the unit of measurement and thus attaches the same weight to Luxembourg as to China. One might ask, alternatively, what happened during COVID-19 to the distribution of GDP per capita among countries when these are weighted by population. That approach is the same as measuring inequality in an imaginary distribution of all individuals in the world, where all people are assigned their country’s GDP per capita—Milanovic’s “Concept 2” global inequality.
When differences in GDP per capita are weighted by population, inequality between countries increased during 2020—which Deaton argues can be attributed to the pandemic. More specifically, it can be attributed to the sharp economic contraction in India, which suffered a great deal both in terms of mortality and economic performance—even before the massive second wave in 2021. Although China’s positive growth (and far fewer deaths) helps offset India’s decline, China is now too close to the global average income to completely compensate for India’s economic losses. When India is omitted from the calculation, Concept 2 inequality continues to decline, as it had been doing since the 1990s. Through India, the pandemic did contribute to a reversal in the previous pattern of falling weighted inequality between countries.
Of course, people are very far from earning the same income within any given country. Concept 3 global inequality refers to the inequality among all the world’s individuals when they are assigned their own incomes. This is arguably the most interesting of Milanovic’s three concepts of global inequality, and it is the only one that takes inequality within countries into account. For many “good” inequality measures, this Concept 3 inequality is just the sum of (appropriately weighted) inequality within countries and Concept 2 inequality between countries.
Since Concept 2 inequality appears to have risen in 2020, it would be enough for “average” inequality within countries also to have risen for us to conclude that global inequality among individuals has grown during the pandemic, in conformance with what most people suspect. Unfortunately, it is too early to tell whether or not that is the case: data on individual incomes come from household surveys and administrative sources that are simply not yet available for 2020. For most countries, it will be at least a year, and typically more, before data on income inequality within countries become available.
For the moment, though, it certainly seems plausible that inequality within many countries is on the increase, given evidence of rising poverty and rising billionaire incomes. There are good reasons to expect that the pandemic both created new inequalities and exacerbated preexisting income gaps within countries. There is long-standing evidence from many countries that people entering the labor market during a severe recession earn less than the cohorts just before and after them—and that those differences linger for many years. By inducing a massive global recession, COVID-19 has certainly created new inequalities among cohorts of young people.
With both extreme poverty and billionaire wealth on the rise, the pandemic’s effect on inequality may appear obvious. The reality is not as simple as you may think.
photoed by Xu Mengyao
Inequality is a notoriously challenging concept on which to make definitive statements. Inequality of what? Of household income or of GDP per capita? Or even of mortality rates themselves, across different groups? Inequality among whom: should it be viewed at the level of individuals? Households? Countries? Even once a distribution is precisely specified—so that we are clear about what is distributed among whom—firm conclusions about the direction of inequality change will generally depend on what part of the distribution you care about most. Different measures of inequality—such as the Gini coefficient, the Theil index, and the income share of the wealthiest in society—are sensitive to different parts of the distribution and can in principle rank inequality before and after the pandemic differently. Clarity about which inequality is being measured matters a great deal for assessing the unequal impact of the pandemic.Consider first the global distribution of COVID-19 mortality itself. Using the concept of life years lost to the disease—estimated using ages at death and the residual life expectancies at those ages—we find that the mortality burden of the pandemic is positively correlated with national income per capita, despite the superior health and public prevention systems in rich countries (Ferreira and others 2021).
Although there is enormous variation at each income level—with Brazil’s mortality burden (adjusted by population) 1,000 times greater than Thailand’s, for example—there is nonetheless a very clear positive association. Richer countries suffer greater losses of life years per capita than poorer countries. Measurement error is likely substantial, with a number of poor countries, such as Burundi and Tanzania, clearly underreporting deaths, but the association is so strong that it is unlikely to be spurious. Among other things, it reflects the older age structure of the population in richer countries and an illness whose lethality is highly age-selective. Higher life expectancies, greater urbanization, and the pandemic’s spread along major trade routes also likely have played a role.
But what about the distribution of income, instead of mortality? How did global income inequality change during the pandemic? Well, global inequality in incomes can be understood in at least three ways: first is the question of what happened during COVID-19 to the distribution of GDP per capita among countries—labeled “Concept 1” global inequality by Branko Milanovic. In a recent paper, Nobel laureate Angus Deaton shows that, on average, richer countries also experienced larger economic contractions than poorer countries in 2020 (Deaton 2021). And although by itself this result does not necessarily imply a decline in inequality between countries, it turns out that the actual pattern of income declines did indeed lead to a reduction in (unweighted) inequality between countries during 2020, whether it is measured by the Gini coefficient, the Theil index, or the coefficient of variation. This represents a continuation of the trend since the turn of the millennium, when Concept 1 global inequality began to fall, owing in large part to the rise of China and India. But Deaton argues that, if anything, the pandemic accelerated the decline.
This calculation takes countries as the unit of measurement and thus attaches the same weight to Luxembourg as to China. One might ask, alternatively, what happened during COVID-19 to the distribution of GDP per capita among countries when these are weighted by population. That approach is the same as measuring inequality in an imaginary distribution of all individuals in the world, where all people are assigned their country’s GDP per capita—Milanovic’s “Concept 2” global inequality.
When differences in GDP per capita are weighted by population, inequality between countries increased during 2020—which Deaton argues can be attributed to the pandemic. More specifically, it can be attributed to the sharp economic contraction in India, which suffered a great deal both in terms of mortality and economic performance—even before the massive second wave in 2021. Although China’s positive growth (and far fewer deaths) helps offset India’s decline, China is now too close to the global average income to completely compensate for India’s economic losses. When India is omitted from the calculation, Concept 2 inequality continues to decline, as it had been doing since the 1990s. Through India, the pandemic did contribute to a reversal in the previous pattern of falling weighted inequality between countries.
Of course, people are very far from earning the same income within any given country. Concept 3 global inequality refers to the inequality among all the world’s individuals when they are assigned their own incomes. This is arguably the most interesting of Milanovic’s three concepts of global inequality, and it is the only one that takes inequality within countries into account. For many “good” inequality measures, this Concept 3 inequality is just the sum of (appropriately weighted) inequality within countries and Concept 2 inequality between countries.
Since Concept 2 inequality appears to have risen in 2020, it would be enough for “average” inequality within countries also to have risen for us to conclude that global inequality among individuals has grown during the pandemic, in conformance with what most people suspect. Unfortunately, it is too early to tell whether or not that is the case: data on individual incomes come from household surveys and administrative sources that are simply not yet available for 2020. For most countries, it will be at least a year, and typically more, before data on income inequality within countries become available.
For the moment, though, it certainly seems plausible that inequality within many countries is on the increase, given evidence of rising poverty and rising billionaire incomes. There are good reasons to expect that the pandemic both created new inequalities and exacerbated preexisting income gaps within countries. There is long-standing evidence from many countries that people entering the labor market during a severe recession earn less than the cohorts just before and after them—and that those differences linger for many years. By inducing a massive global recession, COVID-19 has certainly created new inequalities among cohorts of young people.
