Higher inequality in Latin America: a collateral effect of the pandemic

Abstract

ABSTRACT This study explores the evolution of inequality in Latin America during the COVID-19 pandemic by using primary data from household and employment surveys collected in 2020. First, we discuss the trends in inequality in the region from 1992 to 2020. Next, we estimate regression models to examine how the changes in demographics and education levels might be correlated with changes in income distribution. Finally, we use a panel regression model with fixed effects for 16 countries in the region to identify how the socioeconomic context might help explain the changes in income inequality. The empirical findings suggest that inequality increased by a statistically significant 2% between 2019 and 2020. We obtained significantly heterogeneous results when disaggregating by gender, urban/rural location, and sector of economic activity. Remittances had a modest effect, while government transfers helped to prevent more significant disparities in half the countries studied. Our estimations show that the decline in employment levels – due to the economic contraction caused by COVID-19— is associated with increases in income inequality that might gradually diminish with the recovery.