 The redistributive effects of pandemics: evidence on the Spanish fluSergi Basco, Jordi Domenech and Joan Rosés LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: Which are the effects of pandemics on the returns to factors of production? Are these effects persistent over time? These questions have received renewed interest after the out- burst of deaths caused by Covid-19. The Spanish Flu is the closest pandemic to Covid-19. In this paper, we analyze the impact of the Spanish Flu on the returns to labor and capital in Spain. Spain is an ideal country to perform this exercise. First, the “excess death rate” was one of the largest in Western Europe and it varied substantially across regions. Second, Spain was transitioning towards industrialization, with regions in different stages of development. Third, Spain was developed enough to have reliable data. We identify the effect of the Spanish Flu by exploiting within-country variation in “excess death rate”. Our main result is that the effect of the Spanish Flu on daily real wages was large, negative, and broadly short-lived. The effects are heterogeneous across occupations and regions. The negative effects are exacerbated in (i) occupations producing nonessential goods like shoe- makers and (ii) more urbanized provinces. Quantitatively, relative to pre-1918, the decline for the average region ranges from null to around 30 percent. In addition, we fail to find significant negative effects of the flu on returns to capital. Whereas the results for dividends are imprecisely estimated (we cannot reject a null effect), the effect on real estate prices (houses and land), driven by the post-1918 recovery, is positive. Experts on inequality have argued that pandemics have equalizing effects especially in a Malthusian setting, due to real wage increases. Our findings suggest that, at least, for a developing economy like Spain in the early 20th century, this result does not apply. Indeed, we document that the flu pandemic was conducive to a (shortrun) reduction in real wages. In addition, we interpret our heterogeneous results as suggestive evidence that pandemics represent a demand shock. Keywords: pandemics; Spanish flu; real wages; returns to capital (search for similar items in EconPapers) Published in World Development, 1, May, 2021, 141. ISSN: 0305-750X Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:108203 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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