Inequality aversion (IA) reflects how much a society is willing to give up to achieve a more egalitarian distribution of well-being. IA is partially responsible for the observed levels of inequality in society, and may vary with individual characteristics such as age (more averse), income (less averse), aversion to other risks (more averse to inequality) and education (more averse). How is IA affected by large external shocks such as pandemics like Covid-19? Do people who are directly affected by Covid-19 differ from the rest?
We examined preferences for both income inequality and inequality in health outcomes using a survey taken during the initial stages of the Covid-19 pandemic in the UK, Germany, and Italy. We adjusted the results for interpersonal differences in risk aversion generally, in income, and in other relevant characteristics. We measured health, financial, and employment shocks experienced during the pandemic, and for the UK we looked at how aversion to inequality changed during the pandemic compared to what it was in 2016.
In all countries we find that people are more averse to income inequality than to inequality in health outcomes, consistent with the findings of other smaller-scale studies conducted before Covid-19. Across the three countries we find that those who were younger, who had higher incomes, lower education attainment, or who were generally risk-loving had significantly lower levels of aversion toward inequality in both incomes and health outcomes. In contrast, we find no evidence to suggest any gender differences in these attitudes. Germans on average proved to be the most averse to inequality in incomes whilst aversion to unequal health outcomes is greater in the UK and Germany compared to Italy. Interestingly, individuals who experienced health or employment shocks in their household during the Covid-19 pandemic tended to be significantly less averse to both health and income inequality. However this result might not be specific to a Covid-19 shock, so, to compare the effect of exposure to Covid-19 to pre-Covid equivalent effects, we examined inequality preferences over time in the UK.
Evidence from the UK pre and post Covid suggests an increase in aversion to unequal health outcomes of 17.3%, almost twice as large as the increase in aversion to income inequality. This is consistent with the large health impacts and more modest income impacts of the Covid-19 crisis experienced in the early stages of the pandemic in the UK. Using differences-in-differences—comparing the same types of individuals in the UK before and during the Covid-19 crisis—we find that those individuals in high Covid-19 risk age-groups who experienced a health shock during the pandemic displayed significantly increased levels of aversion to health and income inequality compared to individuals of the same age who experiened a health shock in 2016. These effects may be explained by the salience of health shocks among individuals who are more exposed to the risks of the pandemic, as well as by direct experience with the potentially life-threatening effects of Covid-19 in households facing a health shock.
The Covid-19 crisis had important impacts on people’s income-inequality preferences and health-inequality preferences, but the effects differ depending on the characteristics and experiences of risk in the household.
© Miqdad Asaria, Joan Costa-Font, and Frank Cowell
Miqdad Asaria is an Assistant Professorial Research Fellow in Health Economics at the London School of Economics and Political Science, UK.
Joan Costa-Font is an Associate Professor (Reader) in Health Economics at the London School of Economics and Political Science, UK, and a Research Fellow of IZA and CESIfo.
Frank Cowell is Professor of Economics at STICERD, London School of Economics and Political Science, and a Research Fellow of IZA.
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