Abstract
This paper undertakes a near real-time analysis of the income distribution effects of the Covid-19 crisis in Australia to understand the ongoing changes in the income distribution as well as the impact of policy responses. By semi-parametrically combining incomplete observed data from three different sources–the monthly Longitudinal Labour Force Survey, the Survey of Income and Housing and administrative payroll data–we estimate the impact of Covid-19 on the Australian income distribution and decompose its impact into the income shock effect and the policy effect between February and June 2020, covering the immediate periods before and after the initial Covid-19 outbreak. Our results suggest that, despite growth in unemployment, the Gini coefficient of equivalised household disposable income dropped by more than 0.02 points between February and June 2020. This reduction is due to the additional wage subsidies and welfare supports offered as part of the policy response, offsetting the increase in income inequality from the income shock effect. The results shows the effectiveness of temporary policy measures both in maintaining living standards and avoiding increases in income inequality. However, the heavy reliance on the support measures shown in the modelling raises the possibility that the changes in the income distribution may be reversed, or even that inequality and living standards could substantially worsen once the measures are withdrawn.
Highlights
The Covid-19 pandemic and the associated government response led to a significant shift in the usual pattern of social and economic activities
Where I is an outcome measure calculated from the entire income distribution, p is the government Covid-19 response policies and y is the distribution of gross market income
Using the combined data from the monthly Longitudinal Labour Force Survey (LLFS), administrative payroll information and the Survey of Income and Housing (SIH), this paper proposes a method to reconstruct the income distribution semi-parametrically from incomplete data, and uses this method to estimate the impact of the Covid-19 outbreak and the policy response on the income distribution
Summary
The Covid-19 pandemic and the associated government response led to a significant shift in the usual pattern of social and economic activities. Many governments worldwide imposed various measures in the hope of containing the outbreak Both the pandemic and the policy measures have had wide-reaching and highly asymmetric implications for many aspects of life in most countries (Baker et al, 2020; Bonaccorsi et al, 2020; McKibbin & Fernando, 2021). There may be a non-negligible difference between the current population and the one reflected in the collected data. Such a discrepancy limits the capability to analyse sudden events, including the spread of Covid-19
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