Juan C. Palomino, Juan G. Rodríguez, Raquel Sebastian (ICAE) | The emergency measures adopted to contain the spread of COVID-19 all around the world are largely based on social distancing and closure of high-risk productive activities. The paralysis of production imposed by the contention measures during the lockdown and the capacity limitations driven by official restrictions and by consumers precautionary behaviour will thus have an uneven impact on workers from different occupations and industries. Our analysis reveals a sizable potential increase in poverty and inequality across Europe.
Poverty will increase under our simulations in all countries. Under the most conservative scenario, a lockdown of two months, we estimate a mean loss rate for the poor of 10% and an increase in the headcount index of 4.9 percentage points on average in Europe, with the change ranging from 2.6 points (Switzerland) to 8.5 points (Croatia). Likewise, wage inequality increases under a lockdown of two months, being the change in the Gini coefficient equal to 3.5% for Europe on average, with changes ranging between 2.2% (Netherlands) and 4.9% (Cyprus).
Considering a more severe scenario with 6 months of partial closure at 60% of full capacity after a two-month lockdown, we estimate a mean loss rate of 16.2% for the poor workers in overall Europe, a rise of 9.4 percentage points in the headcount poverty index and a Gini increase of 7.3% on average for Europe. Our results also highlight that lockdown measures are likely to worsen cohesion in Europe both between countries and, especially, within countries. Our decomposition exercise shows that between-countries inequality will increase in Europe between 2.5% and 4.0%, while within-countries inequality will increase between 5.0% and 12.1%.
In general, we find a greater increase of both poverty and inequality in Eastern and Southern Europe than in Northern and Central Europe. Workers tend to have a lower and more unequally distributed ability to work under the shutdown and social distancing in the economies of Eastern and Southern Europe than in the Northern and Central European countries. These differences across European areas get larger with the severity of the measures to fight and prevent COVID- 19 infection.