Pandemics make us more averse to inequality

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COVID-19 has not only impacted inequality, it has also affected preferences for inequality. This column examines inequality aversion in Italy, Germany, and the UK. Surveys taken during the early stages of the pandemic higher aversion to income inequality than to health inequality in all three countries, consistent with the findings of other studies conducted before COVID-19. Focusing on the UK, it also finds that people have become more averse to inequality since the onset of the pandemic, especially when it comes to health. This effect is stronger among those not directly affected by the COVID-19 pandemic. 

Understanding how individuals trade off inequality reductions and aggregate wellbeing is important for guiding wider public policy decisions, especially when society undergoes a significant health shock such as a global pandemic. Inequality aversion (IA) reflects how much a society is willing to give up achieving a more egalitarian distribution of wellbeing. Inequality aversion is partially responsible for the observed levels of inequality in society and may vary with individual characteristics such as age (more averse), income (less averse), aversion to other risks (more averse to inequality) and education (more averse). Are inequality preferences affected by large external shocks such as pandemics like Covid-19? Do people who are directly affected by COVID-19 differ from the rest?

Domains matter

Inequality preferences cannot be assumed to be stable across different domains. Economists such as James Tobin put forward the theory of specific egalitarianism (Tobin 1970), suggesting that the extent of inequality aversion may depend on the domain in life one focuses on, and luck egalitarianist approaches distinguish the justice (or legitimacy) of inequalities across different domains based on how much ‘luck’ (e.g. genetics) is responsible for such inequalities (Barry 2006). Inequalities that result from pandemics such as COVID-19 might engender some form of luck egalitarianism, whereby inequalities not deriving from choice but from unforeseen circumstances are perceived as unjust (Wikler 2002).

Inequality in health and income in European countries

Some evidence derived from general health questionnaires (GHQs) since the onset of COVID-19 suggests that the pandemic has increased inequality in mental health (Davillas and Jones 2020). Similarly, some other evidence finds evidence of an increase in wage inequality and poverty in Europe (Palomino et al. 2020). Consistent with this, evidence from Italy suggests that inequality is higher in areas affected more by the pandemic (Galleta and Gimmoni 2020). However, it is difficult to make a causal inference since counties with higher overall income inequality tend to have higher infection rates (Brown and Ravalllion 2020). 

Evidence from a three-country survey

In a new paper (Asaria et al. 2021), we examine preferences for both income inequality and inequality in health outcomes using a survey taken during the initial stages of the COVID-19 pandemic in the UK, Germany, and Italy. We adjust the results for interpersonal differences in risk aversion generally, in income, and in other relevant characteristics. We measured health, financial, and employment shocks experienced during the pandemic. Additionally, for the UK we looked at how aversion to inequality changed during the pandemic compared to what it was in 2016.

In all countries we find that people are more averse to income inequality than they are to inequality in health outcomes, consistent with the findings of other smaller-scale studies conducted before COVID-19. We report estimates of the average inequality aversion level by country in Table 1.  We find a higher inequality aversion to income than to health in all countries, consistent with the findings of other studies conducted before COVID-19 (Costa-Font et al. 2019, Hurley et al. 2020).

Figure 1 Cross-country income and health inequality aversion in 2020

Note: We plot the mean estimates of income and health inequality aversion in the 2020 covering Italy, Germany, and the UK. 

Across the three countries, we find that those who were younger, had higher incomes, lower education attainment, or who were generally risk-loving had significantly lower levels of aversion towards inequality in both income and health outcomes. We find no evidence to suggest any gender differences in these attitudes. Germans on average proved to be the most averse to inequality in income, whilst aversion to unequal health outcomes is greater in the UK and Germany compared to Italy. Interestingly, individuals who experienced health or employment shocks in their household during the COVID-19 pandemic tended to be significantly less averse to both health and income inequality. However, this result might not be specific to a COVID-19 shock, so to compare the effect of exposure to COVID-19 to pre-COVID-19 equivalent effects, we examined inequality preferences over time in the UK.

Income of health inequality aversion

Evidence from the UK pre- and post-COVID-19 suggests an increase in aversion to unequal health outcomes of 17.3%, which is almost twice as large as the increase in aversion to income inequality. This is consistent with the large health impacts and more modest income impacts of the COVID-19 crisis experienced in the early stages of the pandemic in the UK. Using differences-in-differences – comparing the same types of individuals in the UK before and during the COVID-19 crisis – we find that those individuals in high COVID-19 risk age groups who experienced a health shock during the pandemic displayed significantly increased levels of aversion to health and income inequality compared to individuals of the same age who experienced a health shock in 2016. These effects may be explained by the salience of health shocks among individuals who are more exposed to the risks of the pandemic, as well as by direct experience with the potentially life-threatening effects of COVID-19 in households facing a health shock.

Conclusion 

The COVID-19 crisis has had an important impact on people’s income inequality preferences and health inequality preferences, making people more inequality averse, especially if they have not been directly affected by COVID-19 themselves. Hence, the characteristics and experiences of risk in the household matter significantly for the impact of a pandemic on its preferences pertaining to inequality.

References

Barry, N (2006), “Defending luck egalitarianism”, Journal of Applied Philosophy 23(1): 89-107.

Asaria, M, J Costa-Font  and F Cowell  (2021), “How does exposure to COVID-19 influence health and income inequality aversion?”,  IZA Working Paper, 14103. 

Brown, C and M Ravallion (2020), “Poverty, inequality, and COVID-19 in the US”, VoxEU.org, 10 August. 

Costa-Font, J and F Cowell (2019), “Incorporating inequality aversion in health-care priority setting”, Social Justice Research 32(2), 172-185.

Davillas, A and A Jones (2020), “The COVID-19 pandemic has increased and broadened inequality in psychological distress in the UK”, VoxEU.org, 30 June. 

Galleta, S and T Gimmoni (2020), “Pandemics and inequality”, VoxEU.org, 03 October.  

Hurley, J, E Mentzakis and M Walli-Attaei (2020), “Inequality aversion in income, health, and income-related health”, Journal of Health Economics 102276.

 Palomino, P C, J Gabriel Rodríguez, R Sebastian (2020), “Inequality and poverty effects of the lockdown in Europe”, VoxEU.org, 16 June. 

Tobin, J (1970), “On limiting the domain of inequality”, The Journal of Law and Economics 13(2): 263-277.

Wikler, D (2002), “Personal and social responsibility for health”, Ethics & International Affairs 16(2): 47-55.



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