From Middle Class to Poverty: The Unequal Impacts of the COVID-19 Pandemic on Developing Countries

Mariana Viollaz, Daniel Vasconcellos Archer Duque, Carolina Diaz-Bonilla, David Newhouse and Michael Weber

No 10304, Policy Research Working Paper Series from The World Bank

Abstract: This study combines pre-COVID-19 household surveys with 2020 macro data to simulate changes in household economic welfare and poverty rates through job losses, labor income changes, and non-labor (remittance) income changes during 2020 in Brazil, Sri Lanka, the Philippines, South Africa, and Türkiye. It first presents an in-depth analysis of employment elasticities projections—a critical input in microsimulations—for 15 developing countries. In 11 of the 15 countries, employment estimates for 2020 based on elasticities were within 5 percent of the actual employment level, but in four countries, where the labor markets were more disrupted by the pandemic, the projections considerably underestimated job losses due to the crisis. The study then presents the simulation results for the five countries, which show declines in per capita household income or consumption across the distribution, a decline in the middle class, and increased poverty, but no other clear pattern of impacts across the different quintiles. Finally, data from Brazil indicate that the simulation underestimated the magnitude of the shock throughout the distribution, especially for the wealthy, because it underestimated declines in earnings.

Date: 2023-02-13
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