Wage inequality during the pandemic: largely contained by public subsidies

Oriol Aspachs, Alberto Graziano and Josep Mestres, CaixaBank Research
Rubén Durante, José García-Montalvo and Marta Reynal-Querol, Universitat Pompeu Fabra
Project selected in the Social Research Call 2020

The crisis generated by covid-19 has brought in its wake considerable economic consequences, including a significant impact on wage inequality. This inequality not only responds to the dispersion in wage levels, but also to employment “intensity”, i.e. whether people are working and with what regularity. The use of mass data in real time enables analysis of the role that has been played by public subsidies to mitigate the impact of the crisis on inequality, both for the population as a whole and for the different population groups. It was observed that income support mechanisms implemented by government have managed to substantially reduce this impact, and that the time devoted to managing these subsidies is also important.
Key points
  • 1
       During the first months of the pandemic, the impact of covid-19 on inequality, before public subsidies are accounted for, was enormous. In April 2020, unemployment inequality as measured by the Gini index had increased by over 11 points. However, after considering public subsidies – particularly, the ERTE furlough scheme – this increase was reduced to 4 points.
  • 2
       The results show that in order to reduce inequality, having a good system of public subsidies is not sufficient: the efficiency with which they are managed is also key. For example, if in November 2020 the processing of unemployment subsidies had been 5% faster in terms of in number of days, the Gini index would have been reduced by 0.2 points.
  • 3
       The impact of covid-19 on inequality was greater among women, young people, and people born abroad.
  • 4
       In Spain, employment is the most important component in the changes in inequality and, once more, it was the main factor during the covid-19 crisis. For illustrative purposes, between February and April 2020, nearly 90% of the increase in salary inequality (before public transfers) obeyed the decline in employment; the rest was due to increases in wage inequality among workers.

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Oriol Aspachs, Alberto Graziano and Josep Mestres , CaixaBank Research
Rubén Durante, José García-Montalvo and Marta Reynal-Querol , Universitat Pompeu Fabra

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