Lucila Berniell
Economista Principal, CAF -banco de desarrollo de América Latina y el Caribe-
This blog is written by Lucila Berniel and Dolores de la Mata.
The economic and social crisis triggered by COVID-19 had an unprecedented impact and threatens to exacerbate several of the region’s large outstanding debts in terms of poverty and inequality. During the 2010s, the region experienced stagnation in these socioeconomic indicators compared to the previous decade. In 2019, one in three Latin Americans lived in a household below the poverty line and income gaps between haves and have-nots were among the highest in the world. In this post, we discuss two important channels, the functioning of labor markets and the accumulation of human capital, through which the COVID-19 crisis can become a source of exacerbation of inequalities. These wider social gaps can reinforce the intergenerational links of poverty, with consequences soon to become visible that can endure in the long term, threatening the very foundations of inclusive development for the region.
The dwindling economic activity as a result of the pandemic and measures taken by governments to curb it had a strong impact on employment, which fell sharply in 2020 and has recovered, partially and slowly, throughout 2021. According to the latest available data from household surveys for a selected group of countries, by mid-year, employment had not yet reached pre-pandemic levels, as shown in the red line in Figure 1. Job loss, however, has not been the same for everyone. For example, in many countries the impact on employment was felt disproportionately by people with lower levels of education and on women, the first signs that the crisis will amplify income inequality existing before the pandemic (Figure 2).
The loss of jobs was coupled with a significant reduction in labor participation (Figure 1). Thus, not only the problems of labor demand hinder the restoration of employment to pre-crisis levels, but also certain factors that determine labor supply decisions could be hindering reactivation. Workers discouraged by high unemployment rates and the need to perform childcare tasks during school closures are behind the persistent drop in labor force participation. These work disruptions have high costs because they hinder the reintegration into the labor market due to deterioration of skills and a smaller and more intermittent work experience, thus reducing the chances of getting higher quality jobs in the future, for example, formal jobs. It should also be noted that the fall in labor force participation has been especially sharp for women, partly reversing the progress made in closing gender gaps in recent decades. Another group hit hard by this crisis was young people, for which informal job rate rose disproportionately. Evidence suggests that low-quality early work experiences, such as entry into labor market through informal jobs, seriously compromise the quality of future careers.
In addition to the above, and as an additional inequality-driving factor, the pandemic also impacted the possibilities of job continuation, but now from working from home. As shown by this research, the possibilities for teleworking are unevenly distributed in the population because the type of jobs that can do without physical presence, as well as the availability at home of the necessary teleworking equipment (connectivity, physical space and low childcare demand) are more common in the richest groups.
Impact of COVID-19 on human capital investments and inequality in the long term
Childhood and adolescence are critical periods for human capital accumulation. The disruption of certain investments at these stages can have permanent consequences on cognitive, socio-emotional and physical development. During the pandemic, the main players contributing to human capital formation (family, the educational system and the health system) suffered significant disruptions that may leave permanent scars on children and young people. First, families suffered a drastic drop of income due to the loss of jobs and the reduction of economic activity. As we documented earlier, the shock was not homogeneous across population groups, and social protection and assistance systems have only managed to partially cushion the blow of lost income for the most vulnerable households. Thus, children from more vulnerable families were potentially hit hardest by the adjustment of family investments to form human capital. Such mechanisms can strengthen intergenerational poverty links.
The education system also underwent an unprecedented impact: Social distancing measures forced the closure of schools and the replacement of face-to-face education with alternative modes of distance learning. According to data compiled by UNESCO, the countries of Latin America and the Caribbean experienced the longest school closures worldwide, and had distance learning in place for the longest time, as highlighted in the red bars of Graph 3. As distance learning is an less-than-perfect substitute for face-to-face education, and schools and households were unable to adapt quickly to this modality, learning losses can be expected to be substantial. Although up-to-date and comparable information between countries is not yet available, even greater drops in learning are expected in children from more vulnerable households, for whom the means to adapt to distance learning are significantly scarcer.
Lastly, the pandemic led to significant disruptions in the health system and in the provision of critical services in the first years of life. First, the need to channel funds towards the containment of the pandemic and, second, the lower demand for medical services due to mobility restrictions and fear of contagion, caused disruptions in primary health care. Although data are more limited, some indicators of vaccination coverage in children aged 0 to 5 years show the magnitude of these disruptions. Figure 4 shows how the coverage of three vaccines (first and third doses of diphtheria, tetanus and whooping cough vaccine and second dose of measles vaccine) varied in 2020, compared to the average seen between 2017–2019. Figure 4.A shows the variation in coverage in Latin America and the Caribbean compared to other regions of the world. Our region experienced the greatest falls in this period. Figure 4.B shows that, although variation was heterogeneous across countries, most of them showed declines in coverage. Given the high fragmentation of health systems in the countries of the region, and the quality gaps between contributory and non-contributory schemes, the most vulnerable groups (covered by non-contributory schemes) are expected to have encountered greater barriers to effective access to essential health services.
In short, the disruptions in investments in human capital have been great, and show a profile that exacerbates previous inequalities. This is especially worrisome in Latin America and the Caribbean, a region characterized by unequal access to coverage and insurance strategies that can cushion these blows. For the region to continue opening opportunities for new generations, it is crucial to be mindful of the potential scars of the COVID-19 crisis, and act accordingly to minimize long-term impacts. Otherwise, this shock could become yet another driver of intergenerational poverty and inequality in the region.
