January 7, 2021

The beginning of the epidemic in the Latin American and Caribbean region was grounded in high uncertainty: as opposed to Europe and the United States, the region was barely impacted at first and the question remained wide open regarding the possible replication of the restrictive measures put in place by countries heavily hit at the beginning and at an opposite climate season.

Very quickly, Latin America became the most affected region by COVID-19 worldwide (and this until  October 2020, date when the reversed seasons put Europe in first place), representing globally more than one fourth of the cases and a third of deaths when it only has 9% of the world population. Hence the region is over-represented when it comes to public health and economic costs, while adding a constant rise in hunger, struggling economies, an increase of inequalities and a hurricane season that is approaching. Hunger and food insecurity could lead to numerous conflicts, political trouble and force vulnerable families to migrate. According to the WFP[1], the number of people not knowing where their next meal will come from in the months to come has increased by four since 2019 in the region.

Furthermore the region is experiencing an unprecedented crisis on the labor market, as a consequence of the COVID-19 pandemic. The drastic decrease of the employment rate (with 34 million unemployed people), of the number of working hours and of the level of wages explain the reduction of the level of economic activity (-9.4% in 2020). The perspectives are even more worrisome if we take into consideration that the impact has been unequal: women, children, informal workers (which represent 80% of workers in the lower quantile) and self-employed are the biggest losers. The road to economic recovery, which is taking shape very slowly (and certainly with an asymmetric recovery between sectors which will add more distortions) could be accompanied with a deepening of these differences.

THE PANDEMIC AS AN ACCELERATOR OF PREEXISTING INEQUALITIES

This crisis is therefore exacerbating the disparities that existed beforehand, even if most of the countries have made efforts to quickly put in place a number of policies to tackle the loss of jobs and income. The current crisis could also lead to backsliding on the progress done in the past decade or two on the most unequal continent in the world. During the pink tide (first decade of the 2000s), the economic growth driven from the outside (and tied to a decrease in poverty as well as disparity in income distribution) has been linked to the expansion of the middle class (considered a significant social progress, as its size has often been used as a measure of happiness). Today, the middle class is losing - in terms of income - relatively more than the poor. The economic recovery will also depend in large part on them, and especially on their consumer behavior: middle class people are often described as those who buy goods they don't need, with money they don't have, and to impress the people they don't know[2].

As it has been well demonstrated in the Province of Buenos Aires, the virus in most of the countries in the region seems to have been brought over by the richest groups coming back from work assignments or leisure travel. In the first weeks, most of the health facilities dealt with a lack of clear public health protocols. Considering that the cold season was going to follow the arrival of the virus in the Southern Cone, the region has been waiting since April for the peak of the epidemic. Another distinctive feature was the "community" quarantine in working-class districts (or "slums") where housing is overcrowded, which forces the residents to go out in public places more often in order to get essential goods. The lockdown was not limited to the dwelling, but also included whole neighborhoods.

A SERIES OF NEGATIVE IMPACTS (THE WORST OF ALL POSSIBLE WORLDS)

This public health impact created an economic impact with consequences that are already seen in the short-term (mostly focused on the partial or total decrease in income), but also in the long-term. The long-term consequences are much more worrisome since their irreversible nature is stronger, as they are more focused on the accumulation of human capital (considered as education and health) and hence as a direct contributor to the intergenerational transmission of inequalities. The most vulnerable groups are at the center of this situation: the poorest, but also those who can fall below the poverty line.

The lockdown that was less discussed during 2020 is the school lockdown. Yet, closing schools over long periods of time is new in recent history. The long-term costs on education is one of the main concerns because investment in education has positive consequences on both equity and growth, and because access to education is differentiated by the social-economic status of the households.

In Latin America, according to recent estimates (which include the hypotheses that one sick person per family is equivalent to  one lost schooling week in home-based learning and that one death in the family is equivalent to three lost schooling weeks or school drop-out), one day of home schooling can be equivalent to one day at school only if the parents’ education level is high enough to let them act as teachers’ substitutes: this will in turn reinforce the pre-existing disparity since there is a direct link between the parents' education and the children's. The switch from formal education to informal education (via internet or through mentors) is very different according to the socio-economic background. The main burden for the poorest of the region is that today’s probability of finishing secondary school is the same as that of children born in the 1960s.

The cost of inaction[3] for early childhood is also not trivial. The current levels of investment and political commitment in favor of young children are sub-optimal and have deteriorated compared to the past. Children under five might not reach their full potential of development, leading to the so called hysteresis mechanism: a situation with harmful consequences and with losses that cannot be regained in the short term[4]. With the closure of and/or the reduced access to preschool programs, the pandemic could bring back the enrollment rate (already weak, 42.2% and 14.9% forfor middle- and low-income countries respectively) to zero for several months in many countries in the area. Closing primary schools is not the only factor tied to the pandemic that is affecting the children, there is also the increase in stress, violence and poverty. In Argentina, Brazil, Colombia and Mexico, the impact is still strongly asymetric and is especially hitting the children coming from disadvantaged families. Consequently, unequal opportunities should be going up substantially, despite mitigating measures.

Because of the pandemic, most governments are trying to break the vicious circle of poverty. Conditional cash transfers, targeted by nature, have become more and more universal[5]. They compensate very partially the current losses and are extremely varied. Brazil has a generous social system, Argentina as well but to a lesser extent, Colombia is fairly unresponsive, Mexico is shocking in its inaction. The big novelty of contemporary capitalism is the creation of a social protection safety net: today we can see the paradox of this crisis by comparing Brazil and Mexico. Brazil provides social assistance to 150 million people which most certainly will be an important buffer against the current crisis: it is then unlikely that poverty will increase in the short term. At the total opposite, Mexico has no active measures in place to compensate for the negative effects of the pandemic on the population, so it may be the case that this country will see the highest increase in poverty among the four largest countries cited above.

FROM A VIRTUOUS CIRCLE TO A VICIOUS CIRCLE?

Before COVID, the region was doing rather well on the social mobility side (especially with respect to access to education and the decrease in "skill premia"). Empirical research[6] shows that the decrease in the Gini coefficient in the last decades can be explained by both the social protection measures and the decrease in wage inequality. The general improvement of access to education brought a decrease in wage disparities within the labor market during the pink tide. Post COVID-19 could take the region back to the past by increasing this "skill premia". According to the OPHI[7], the pandemic is going to reverse the multidimensional poverty reduction trend [8] and bring it back to the level it was 3 or 10 years ago.

In theory, human capital protects against income shocks and income can protect human capital. As such, even if the income level is maintained in some cases, the loss of human capital is almost irreversible. The economic history has rarely shown such an unusual combination of the long-term impacts of macroeconomic crises and the consequences of natural disasters, as if a significant macroeconomic crisis occurred at the same time than an earthquake.

[1] World Food Programme, July 29, 2020, "Hunger rises as Covid-19 cases surge in Latin America" 

[2] Taken from Thorstein Veblen's book, The Theory of the Leisure Class, Gallimard Publication: 21-03-1978a. Their consumption behavior is partly associated with the bottlenecks due to the increase of import goods and the recurrent crisis of the external account.

[3] The loss of productivity over a lifetime coming from a lack of investment in educational care devoted to children.

[4] They face the risk of becoming permanently poor.

[5] What Macri's government had put in place with the universal pension, as well as AMLO a few months before the beginning of the epidemic.

[6] “Declining Inequality in Latin America: A Decade of Progress?”, Edited by Luis Felipe López-Calva and Nora Claudia Lustig- May 28, 2010.

[7] Oxford Poverty and Human Development Initiative

[8] The multidimensional index includes living conditions such as housing, income, education, employability and social protection.

Vera Chiodi is an Associate Professor in Economy at the Université Sorbonne Nouvelle (Institute of Latin American Studies) and member of the Centre de Recherche et de Documentation des Amériques (CREDA UMR 7227). She is currently working under a CNRS agreement. She is co-responsible for the Research Axis Action Publique Action Collective (ACAP) of CREDA. She obtained her PhD in Economic Sciences from the École d’économie of Paris, then did a post-doc at J‐PAL Poverty Action Lab. She is affiliated with the Centro de Estudio para el Desarrollo Urbano, of the Universidad de San Andrés, Buenos Aires, Argentina.  Her research is focused on development economics, economics of education and the job market. She just received a grant from Procope Plus 2021Partenariat Hubert Curien (PHC), financed by Deutscher Akademischer Austausch Dienst (DAAD), Ministère de l’Europe et des Affaires étrangères (MEAE) and the Ministère de l’Enseignement supérieur, de la Recherche et de l’Innovation (MESRI). She recently published "More is more. Livelihood interventions and child labor in the agricultural sector".

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