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How Covid could leave a 100-year scar

October 6, 2020 - 7:15am

In the early weeks of the pandemic a number of eminent persons — such as Queen Elizabeth II, Pope Francis and, er, Madonna — filmed some special messages for the public. However, unlike Her Majesty or His Holiness, Her Madgeness recorded her thoughts while still in the bath.

Perhaps she was just running late, but most likely the idea was to reinforce her key point, which is that Covid doesn’t care who you are and “has made us all equal in many ways”.

In the long-term, though, the pandemic is likely to make us less equal — a proposition for which economic evidence is accumulating. For instance, in an article for VoxEU, Sergio Galletta and Tommaso Giommoni look at the evidence of history. Specifically, they looked at what the Spanish Flu did to the Italian economy after the First World War.

As is the case with Covid-19 today, the impact of 1918 pandemic was geographically uneven. Due to a variety of factors, including the return of Italian soldiers from the Alpine front, some regions and communities suffered more than others.

Crunching the numbers from available databases, Galletta and Giommoni find signs of an enduring impact on income inequality: “Our results suggest that an increase of one standard deviation in our proxy for pandemic exposure in 1918 caused a 2% increase in inequality as measured by the 1924 Gini index.”

Obviously, 1924 was less than a decade later, but the analysis found that a large part of that difference still showed up in 2018 — a hundred years later.

The researchers are at pains to point out that their findings are based on a “specific historical event” and thus shouldn’t necessarily be generalised. Nevertheless, we know that the impact of economic shocks can result in ‘hysteresis’ — i.e. long-term damage to economies and to the life outcomes of individuals.

We also know that economic disadvantage can be passed on from one generation to the next. Therefore, it’s perfectly plausible that an asymmetric shock might still be felt three or four generations down the line.

We’re already aware that the economic impact of Covid-19 so far has been highly unequal. There’s been less of an impact on ‘knowledge workers’ who can work remotely, than on those who can’t do their jobs from home. Furthermore, loss of income is likely to cause more problems for those that have no accumulated wealth to cushion the blow than those who do. Governments have acted to mitigate the immediate impacts, but they also need policies to deal with long-term consequences.

If the current pandemic follows the precedent of previous pandemics, then the death rate will return to normal — and so will the economic growth rate. However, without a long-term policy response, Covid could be showing up in the inequality statistics for decades to come.

‘Levelling up’ has acquired a whole new urgency.

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