The use of anonymised bank data representative of the entire population enables confirmation that the economic crisis generated by the pandemic has led to a strong increase in inequality. Until very recently, this immediate analysis was not feasible in Spain nor in any other country. In general, statistics agencies take years to produce data on the distribution of the population’s income. With banking data, metrics are built to conduct the monitoring of wage inequality in real time and to identify, also in real time, public-sector transfers and their impact on income distribution. 

The Gini index, one of the most widely accepted measures of inequality, takes the value 0 to represent perfect equality and the value 100 to designate maximum inequality (one person has all the income and the rest of individuals, none). This index is usually quite stable over the course of time but between February and April 2020 it increased by over 10 points before taking into account public subsidies, according to information provided by over three million wage slips (Aspachs et al., 2022). We have never observed variations of this size in a single country during such a short period: in two months it increased by 25%. This is a historic increase, but it is worth highlighting that it was substantially lower than that which occurred during the property and financial crisis of 2007-2013. At the same time, for each percentage point that the GDP receded, the Gini index prior to the governmental actions (Gini-pre) increased by 0.9%. In contrast, during the current crisis, this sensitivity has been reduced by half: for each point of fall of the GDP, the Gini-pre has increased by 0.4%. After the public transfers, it has increased by half of what it did then. All in all, beyond the variation in the sensitivity of the Gini indexes with respect to GDP, it is very notable that, from the point at which the economy has gradually recovered, inequality has started to decline.

After taking into account the public-sector supports for income – such as unemployment benefits, or those received by workers affected by a temporary employment adjustment or furlough scheme (ERTE) – the increase in the level of inequality is also pronounced, but very much lower. In April 2020, the increase was 4 points with respect to February of that same year, in other words, some 10%. The increase recorded by the Gini index after considering public subsidies in July 2020 was 1.3 points up with respect to the pre-pandemic level. There is still a long way to go to reach the previous levels.  

The improvement in Gini indexes is generalised among the different population groups. The indexes corresponding to young people and people born outside Spain increased much more than for the rest of the population at the start of the pandemic.

However, since economic activity started to recover, the situation of these groups has improved significantly. In July 2021, such notable differences in the variation by ages were no longer appreciable. With regard to immigrants, the Gini indexes have also improved notably, despite remaining slightly higher than those relating to Spaniards.

Despite the fact that the storm caused by covid-19 is not yet over, we can now analyse the impact of the response of the authorities with regard to wage inequality. Public transfers to employees who are furloughed, or to the unemployed, cushioned the drop in income for many workers; however, to what point did they mitigate the increase in inequality? 

In the toughest months of the pandemic – April and May 2020 – unemployment benefits and, especially, transfers to workers on furlough, attenuated 80% of the increase in salary inequality. In 2021, the crisis generated has been moderated; all in all, between April and July, public transfers were still compensating around 56% of the increase in wage inequality. 

All of this has meant an enormous effort for government, and not only in monetary terms. The massive increase in applications for benefits has been very difficult to manage, and often the times for processing cases have been lengthened. According to our results, in addition to a good system of public subsidies, the efficiency with which these are managed is also key for reducing inequality. If, for example, in November 2020, the processing of unemployment benefits had been 5% quicker in number of days, the Gini index would have been reduced by 0.2 points. Furthermore, some 1% more of cases resolved in fewer than 15 days would have reduced by 9.2% the difference in equality before and after transfers.

To put it another way, if in Catalonia and Madrid the number of days necessary to process an unemployment benefit had increased by half between October and December of 2020, the Gini index would have increased by 0.9 points less. This is not a very high figure, but it should be remembered that this effect only refers to the delay due to the processing time, since individuals with the right to receive a benefit are ultimately paid any delays. This illustrates the impact that greater efficiency on the part of the public authorities can have. Reducing the processing time for unemployment subsidies through, for example, greater digitalisation of public employment services, has a direct and strong impact on the wellbeing of families. 

Debates about inequality are usually centred around the dispersion in salary levels and omit the fact that inequality of wage incomes also depends on employment “intensity”; in other words, on whether a person is working and with what regularity. The Spanish case is quite paradigmatic, with a high degree of seasonality in employment (25.1%) and a proliferation of employment contracts with an increasingly shorter duration, which has a considerable impact on inequality. During the financial crisis of 2007-2011, the strong increase in inequality in Spain obeyed, by 80%, the fall in employment and, by 20%, a greater wage dispersion among workers (own calculations based on OECD data, 2015). These proportions were practically opposed to those of the OECD average, where only 18% of the increase in equality between 2007 and 2011 was explained by changes in employment and 82% obeyed the greater wage dispersion among workers. 

What happened during the pandemic in Spain? Employment again became the main factor responsible for changes in wage inequality. Between February and April 2020, for example, nearly 90% of the increase in wage inequality (before public transfers) obeyed the fall in employment; the rest was due to increases in wage inequality among workers. Thus, to be able to examine the factors that determine the evolution in inequality, it is necessary to review the dynamics of employment, in particular of the groups most affected.

The probability of remaining employed during the toughest period of the pandemic, characterised by strong restrictions of mobility, was not equal for all workers. Those who were earning lower wage incomes prior to the pandemic were those who had a greater probability of not being employed in the following months. Specifically, for those workers in the lowest wage quintile, the probability of being employed was reduced by up to 38% in May 2020: an incidence 23% higher than for workers in the highest quintile. These differences were slightly reduced in the following months, although workers in lower wage quintiles continued facing a greater probability of not being employed. 

By ages, young people have been the group most affected by the pandemic in the labour market. In May 2020, the probability of them receiving a wage was 18% lower than that for older workers, and recovery in the following months was only partial. The probability of being in employment was also reduced to a greater extent for workers born abroad. The gap in the probability of being employed stood at 8% in April 2020 and, curiously, continued growing month by month, to reach 11% by November. The probability of women continuing to be employed in the early months of the pandemic was lower than for men, with a gap in the probability of employment that exceeded 4% and did not start to recover until September.

The pandemic has caused a swift increase in salary inequality in Spain, reaching unprecedented figures. However, the mechanisms of support for incomes implemented by the government have managed to significantly reduce this impact.

Workers with lower incomes, young people, immigrants and women have been the most impacted in the labour market. The recovery of employment is not yet total, especially for more vulnerable groups. For this reason, the increase in inequality with respect to the pre-pandemic level is still considerable and employment, as an essential factor, will once more become the main lever for correcting it. Improving the employability of workers so that nobody ends up left behind, as well as increasing employment intensity, are key tools for preventing inequality from becoming a permanent scar left by the pandemic. 

ASPACHS, DURANTE, GARCÍA-MONTALVO, GRAZIANO, MESTRES and REYNAL-QUEROL (previsto 2022). «Real-Time Inequality and the Welfare State in Motion: Evidence from COVID-19 in Spain», Economic Policy.

OCDE (2015): In It Together. Why Less Inequality Benefits All. París: OECD Publishing.