An empirical analysis of the early impact of Covid-19 on income-related inequality in household stress

ABSTRACT

This paper focuses on the early impact of Covid-19 on income-related inequality in the UK. Using a Concentration Index, we investigate whether Covid-19 has differing effects on the stress levels of low-income households versus high-income level households. We use two measures of stress, mental stress and financial stress and a Recentered Influence Function regression approach to study how the policies implemented by the UK government during the pandemic affected inequality. On examining UK’s policy response, our results show that the mortgage holiday was very effective in lowering income-related inequality in financial stress and the Coronavirus Job Retention Scheme was effective in containing the rise in income-related inequality in mental stress.

KEYWORDS:

• Covid-19
• income-related inequality
• financial stress
• mental stress
• concentration index

JEL CLASSIFICATION:

• I14
• J1
• D63

Acknowledgements

* We would like to thank participants of the Economics Department seminar at the Universita` di Modena for their insightful comments and suggestions. All remaining errors are, of course, our own.

Disclosure statement

The views expressed in this paper are strictly those of the authors and do not represent the position of NCCI.

Notes

1. Stress can be defined as the degree to which you feel overwhelmed or unable to cope as a result of unmanageable pressures (https://www.mentalhealth.org.uk)

2. The literature often uses the terms psychological distress and stress or emotional distress interchangeably in the literature to refer to negative emotional states (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3817353/).

3. The first survey was conducted by Ipsos between June 25–28 on 1,000 British adults aged 16–74 (https://www.ipsos.com/sites/default/files/2020-04/coronavirus-covid-19-infographic-ipsos-mori.pdf) and the second survey was conducted from June 18–21, 2020 by McKinsey & Company (https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-uk-consumer-sentiment-during-the-coronavirus-crisis).

4. For example, Antonis et al (2020) reports that a 2017 survey by the Mental Health Foundation in UK found that 73% of people living in the lowest household income bracket (less than £1,200 per mont) experienced a mental health problem during their lifetime versus 59% in the highest household income bracket (more than £3,701 per month).

5. The study, Coronavirus: Mental Health in the Pandemic, is available at https://www.mentalhealth.org.uk/our-work/research/coronavirus-mental-health-pandemic/about

6. This led to the UK economy contracting by 2.2% in the first quarter of 2020 relative to the previous quarter, with a 6.9% month-on-month contraction in March (International Monetary Fund (IMF) 2020).

7. A ratio-scale variable is a variable with an absolute 0 and equally distanced values between units

8. According to Kjellsson and Gerdtham (2013) the mirror property states that ‘the inequality indices of health and ill-health are mirror images of each other, i.e. I(h) is equal to the absolute value of I(1-h), but has the opposite sign.’ (page 661)

9. The same individuals are re-interviewed in each wave of the Understanding Society survey, approximately 12 months apart. Any individual moving within the UK are followed. If anyone joins their household, they are also interviewed as long as they are living with them.

10. In total, 17,452 individuals out of the entire pool of 42,330 active members completed the survey in April 2020 and 14,811 individuals completed the survey in May 2020. Of those invited, 32,596 had completed the Wave 9 annual interview, the closest wave of the Understanding Society survey of households to the Covid-19 surveys of 2020.

11. See Appendix A for a complete list of the questions used to create the indices.

12. Recall that the absolute CI is invariant to an equal increase in the outcome variable across the population because the difference in the outcome between any two points on the distribution does not change when there is a parallel shift of the distribution.

13. https://researchbriefings.files.parliament.uk/documents/CBP-9060/CBP-9060.pdf