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The redistributive effects of pandemics: evidence on the Spanish flu

Basco, Sergi, Domenech, Jordi and Roses, Joan R. (2021) The redistributive effects of pandemics: evidence on the Spanish flu. World Development, 141. ISSN 0305-750X

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Identification Number: 10.1016/j.worlddev.2021.105389

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.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/world-develo...
Additional Information: © 2021 Elsevier Ltd
Divisions: Economic History
Subjects: R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
H Social Sciences > HC Economic History and Conditions
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
I - Health, Education, and Welfare > I0 - General > I00 - General
N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N10 - General, International, or Comparative
N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Income, and Wealth > N30 - Economic History: Labor and Consumers, Demography, Education, Health, Income and Wealth: General, International, or Comparative (Migration)
Date Deposited: 08 Jan 2021 10:39
Last Modified: 20 Jun 2021 01:05
URI: http://eprints.lse.ac.uk/id/eprint/108203

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