COUNTING THE COSTS A prolonged increase in mortality risk and, more broadly, in the health risk associated with it, especially when unequally distributed across the population (as is known by existing research on both Covid-19 and previous pandemics), can also contribute to income inequality. Health shocks and worse health at the individual level more generally negatively affect labour market participation and income. At the household level, the most obvious and biggest labour income shock is the death of a working parent. However, even a major illness can also have negative implications because it could affect future labour income potential for their offspring via a negative impact on education resulting from reduced household income and perceived trade-offs regarding education. The implications do not stop here. When we look at risk, we are talking about not just what does happen, but what might happen. If people feel more vulnerable to losing employment, this will affect their actions and choices, even if no jobs are actually lost. This uncertainty is a crucial element of economic decision-making and one response is to accumulate savings. Savings play a crucial role in allowing individuals and households to weather temporary downturns in their economic fortunes. So, if health risk increases, labour income risk will rise too, and this might mean an increase in wealth inequality. In addition, results from relevant literature suggest that health risk and adverse health shocks can directly affect saving behaviour. Firstly, like the response to income risk, people have incentives to save just in case they get severely ill. Secondly, health shocks imply an increase in medical expenditure and a reduction in the potential for savings. However, the rise in health risk usually disproportionally affects those with lower income and wealth. Thus, their income and wealth fall even further. At the same time, those with higher income and wealth increase their savings due to the fear factor. Putting all the above together, income and wealth disparities can increase in the medium-term because of the increase in health risk. A CHANGING WORLD There have been many changes in the 100 years between the 1918 influenza pandemic and the arrival of Covid-19. Now we have improved healthcare and better-equipped hospitals, while governments were able to implement sophisticated test-and-trace programmes and instigate massive lockdowns. The Covid-19 response also demonstrated the speed with which vaccines can be developed. The comparison between Covid and the past influenza pandemics is not about mortality rates, rather it is about the evolution of the pandemic over many years. We cannot know the future, but we can have an idea about how Covid-19 might play out based on what has happened in the past. If we believe that Covid will be like past influenza pandemics, then we can expect outbreaks in the years following the main pandemic waves – and we have seen several recurrences already. Not only did governments respond to the health crisis, but they also worked to lessen Covid’s economic impact through initiatives like furlough programmes and cash transfers. Current data indicates that these policy measures mostly maintained income inequality at the same pre-pandemic levels. However, there was indeed a decline in income and, if Covid-19 follows a trajectory like that of earlier influenza pandemics, we might see a future growth in wealth inequality due to heightened health and income risks. This scenario could occur as those with lower savings (or wealth) have to respond to the reductions in income by reducing their savings substantially. They might even need to borrow, perhaps by using credit cards. On the other hand, those with higher wealth can recover quickly and respond to the increased risk by accumulating more savings. This rise in wealth inequality may have consequences. Due to their inability to take preventative – and potentially expensive – measures to address the increase in health risk, people with lower pre-pandemic incomes and worse health will find themselves even more exposed to increased health risk after the pandemic. At the same time, several large economic shocks have made the recovery post-Covid more challenging. Rapid inflation has outpaced wage growth for many, putting pressure on already strained household budgets; and the large debt burden built up during Covid is putting pressure on governments to cut expenditures at a time when the National Health Service struggles to cope with the legacy of the pandemic. We do not yet know what will happen because of Covid-19, but we can reasonably expect longer-term economic consequences – and the risk is that those who were already worse off will suffer the most. FIFTY FOUR DEGREES | 41 Dr Spyridon Lazarakis is a Lecturer in Macroeconomics, with a research interest in wealth and health inequality. This article draws on ideas from the journal article An extended period of elevated influenza mortality risk follows the main waves of influenza pandemics, published in the journal Social Science & Medicine, and from Pandemic-Induced Wealth and Health Inequality and Risk Exposure, a CESifo Working Paper, authored by Dr Max Schroeder, of the University of Birmingham; Dr Spyridon Lazarakis, of Lancaster University Management School; and Dr Rebecca Mancy and Professor Konstantinos Angelopouos, of the University of Glasgow. s.lazarakis@lancaster.ac.uk
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