The COVID-19 shock on the labour market: poverty and inequality effects across Spanish regions

ABSTRACT

The necessary social distancing to limit the spread of COVID-19 during the recent pandemic implies that regions with higher essentiality and teleworking levels have lower vulnerability to poverty and inequality, the opposite occurring in regions intensive in closed activities. Using the latest 2020 European Union Statistics on Income and Living Conditions, we estimate that in the absence of compensating measures, this shock can result in sizable but unequal increases in poverty (between 8.3 and 20.7 percentage points (p.p.)) and wage inequality (between 2.6 and 6.0 Gini points) across Spanish regions. Moreover, inequality between regions can rise, which would erode regional cohesion in Spain.

KEYWORDS:

• COVID-19
• poverty
• inequality
• teleworking
• regions
• Spain

JEL:

• D33
• E24
• J21
• J31

ACKNOWLEDGEMENTS

The authors are grateful to two anonymous referees and an editor for their comments and suggestions.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. Tradable sectors (OECD, 2016) include agriculture (NACE A), industry (BCDE), information and communication services (J), financial and insurance activities (K) and other services (RSTU). Non-tradable sectors are those in which trade to – and competition from – areas outside the economic region is not possible, and include construction (F), distributive trade, repairs, transport, accommodation, food services activities (GHI), real estate activities (L), business services (MN), and public administration (OPQ).

2. See https://ourworldindata.org/covid-cases/.

3. Given the wage distribution w, the Gini coefficient is: $G\left(w\right)={\displaystyle \frac{1}{2n^2\mu }\sum _{i=1}^n\sum _{j=1}^n\left|w_i-w_j\right|,}$where $w_i$ and $w_j$ are the salaries of individuals $i$ and $j$, respectively, and $\mu$ is the mean wage of the economy. It is 0 when there is perfect equality and is 1 when inequality is maximal, that is, only one worker has all the earnings and all others have none.

4. The income thresholds were: US$75,000 if single or married but filing taxes separately, US$112,000 if filing as head of the household, and US$150,000 if married and filing taxes jointly. The PPP provided small businesses – regardless of sales – with loans to pay their employees during the COVID-19 crisis, which were forgiven if employment and compensation levels were maintained. The ERTC was available to entrepreneurs who had suffered a decline in sales of more than 50%.

Additional information

Funding

The authors acknowledge funding from the Ministerio de Ciencia e Innovación, under project PID2019-104619RB-C42, from Citi for the Inequality and Prosperity programme at INET at the Oxford Martin School (Palomino), and from Comunidad de Madrid, under projects H2019/HUM-5793-OPINBI-CM (Rodríguez and Sebastian) and 2018-T2/SOC-10408 (Sebastian). The views expressed are those of the authors not the funders.