Real-time inequality and the welfare state in motion: evidence from COVID-19 in Spain

Abstract

Official statistics on economic inequality are only available at low frequency and with considerable delay. This makes it challenging to assess the impact on inequality of fast-unfolding crises like the COVID-19 pandemic, and to rapidly evaluate and tailor policy responses. We propose a new methodology to track income inequality at high frequency using anonymized data from bank records for over three million account holders in Spain. Using this approach, we analyze how inequality evolved between February and November 2020 (compared to the same months of 2019). We first show that the wage distribution in our data matches very closely that from official labor surveys. We then document that, in the absence of government intervention, inequality would have increased dramatically, mainly due to job losses and wage cuts experienced by low-wage workers. The increase in pre-transfer inequality was especially pronounced among the young and the foreign-born, and in regions more dependent on services. Public transfers and unemployment insurance schemes were effective at providing a safety net to the most affected segments of the population and at offsetting most of the increase in inequality. Increased inequality is primarily driven by differential changes in employment rate. Indeed, using individual-level regressions, we find that, over the course of the pandemic, the probability of being employed decreased drastically for workers in the lower part of the pre-COVID wage distribution, young cohorts, and foreign-born.

Distributional effects of COVID-19

“…The UK (Benzeval et al, 2020;Witteveen, 2020) and the US (Berman, 2020;Cortes & Forsythe, 2020) are two exceptions with ad hoc real-time surveys. To solve the issue, scholars have generally used real-time surveys (e.g., Adams-Prassl et al, 2020;Galasso, 2020) or big data from bank records (Aspachs et al, 2020). However, these kinds of data cannot be taken as representative of the whole population and do not allow reliably estimating changes occurring along the income distribution (Gallo & Raitano, 2020).…”

Nowcasting and provisional estimates of income inequality using microsimulation techniques

“…Using the same tools and data as Eurostat, but a different approach to account for labour market transitions, Christl et al (2022[66]) find that income inequality has decreased in Ireland. Using data from administrative tax and income registers at the Swedish Tax Agency, results by Angelov and Waldenström (2021 [68]) show that income inequality increased during the pandemic in Sweden. Note: In the case of estimates presented with Rounded Uncertainty Intervals (see Section 4), changes in inequality indicated as "considerable" when S80/S20 estimates for 2019 are outside of the Rounded Uncertainty Interval of 2020 estimates in Figure 4.2.…”

The Political Economy of Inclusive Growth: A Review

“…Experience with the Great Depression and the Great Recession shows that when governments increased health care and social protection, inequality declined after the initial increase (United Nations, 2020b). Indeed, the response of the public benefits scheme in Spain substantially mitigated the effect of COVID-19 on inequality (Aspachs et al, 2020).…”