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The redistributive effects of pandemics: Evidence on the Spanish flu

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  • Basco, Sergi
  • Domènech, Jordi
  • Rosés, Joan R.

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 non-essential goods like shoemakers 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 (short-run) reduction in real wages. In addition, we interpret our heterogeneous results as suggestive evidence that pandemics represent a demand shock.

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  • Basco, Sergi & Domènech, Jordi & Rosés, Joan R., 2021. "The redistributive effects of pandemics: Evidence on the Spanish flu," World Development, Elsevier, vol. 141(C).
  • Handle: RePEc:eee:wdevel:v:141:y:2021:i:c:s0305750x21000012
    DOI: 10.1016/j.worlddev.2021.105389
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    1. Ross Cohen-Kristiansen & Roberto Pinheiro, 2020. "The 1918 Flu and COVID-19 Pandemics: Different Patients, Different Economy," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(13), pages 1-5, June.
    2. Velde, François R., 2022. "What Happened to the U.S. Economy during the 1918 Influenza Pandemic? A View Through High-Frequency Data," The Journal of Economic History, Cambridge University Press, vol. 82(1), pages 284-326, March.
    3. Arthi, Vellore & Parman, John, 2021. "Disease, downturns, and wellbeing: Economic history and the long-run impacts of COVID-19," Explorations in Economic History, Elsevier, vol. 79(C).
    4. Ilan Noy & Tomáš Uher, 2022. "Economic consequences of pre-COVID-19 epidemics: a literature review," Chapters, in: Mark Skidmore (ed.), Handbook on the Economics of Disasters, chapter 7, pages 117-133, Edward Elgar Publishing.
    5. Beniamino Callegari & Christophe Feder, 2022. "A Literature Review of Pandemics and Development: the Long-Term Perspective," Economics of Disasters and Climate Change, Springer, vol. 6(1), pages 183-212, March.
    6. Beniamino Callegari & Christophe Feder, 2022. "The long-term economic effects of pandemics: toward an evolutionary approach [Epidemics and trust: the case of the Spanish flu]," Industrial and Corporate Change, Oxford University Press, vol. 31(3), pages 715-735.
    7. Mona Foertsch & Felix Roesel, 2023. "Public Infrastructure and Regional Resilience: Evidence from the 1918 Spanish Flu in Germany," CESifo Working Paper Series 10705, CESifo.
    8. Mikel Erkoreka & Josu Hernando & Eduardo J. Alonso & Anton Erkoreka, 2021. "Impacto económico, demográfico y social de la pandemia de gripe española en Bizkaia (1918-1920)," Investigaciones de Historia Económica - Economic History Research (IHE-EHR), Journal of the Spanish Economic History Association, Asociación Española de Historia Económica, vol. 17(02), pages 42-53.
    9. Sergi Basco & Jordi Domènech & Joan R. Rosés, 2022. "Unequal Mortality During the Spanish Flu," Palgrave Studies in Economic History, in: Pandemics, Economics and Inequality, chapter 0, pages 33-50, Palgrave Macmillan.
    10. Benjamin Schneider & Hillary Vipond, 2023. "The Past and Future of Work: How History Can Inform the Age of Automation," CESifo Working Paper Series 10766, CESifo.
    11. Ilan Noy & Tomáš Uher, 2022. "Economic consequences of pre-COVID-19 epidemics: a literature review," Chapters, in: Mark Skidmore (ed.), Handbook on the Economics of Disasters, chapter 7, pages 117-133, Edward Elgar Publishing.
    12. Subhasish Dey & Jessie Davidson, 2021. "The Determinants of Non-COVID-19 Excess Deaths During the COVID-19 Pandemic: A Cross-country Panel Study," Studies in Microeconomics, , vol. 9(2), pages 196-226, December.
    13. Schneider, Benjamin & Vipond, Hillary, 2023. "The past and future of work: how history can inform the age of automation," Economic History Working Papers 119282, London School of Economics and Political Science, Department of Economic History.
    14. Joe Piacentini & Harley Frazis & Peter B. Meyer & Michael Schultz & Leo Sveikauskas, 2022. "The Impact of COVID-19 on Labor Markets and Inequality," Economic Working Papers 551, Bureau of Labor Statistics.
    15. Basco, Sergi & Domenech, Jordi & Rosés, Joan R., 2021. "Unequal Mortality during the Spanish Flu," CEPR Discussion Papers 15783, C.E.P.R. Discussion Papers.
    16. Guillaume Morel & Magali Jaoul-Grammare, 2023. "Do Pandemics Impact Macroeconomic Variables? A Cliometric Approach," Working Papers 01-23, Association Française de Cliométrie (AFC).
    17. Colvin, Christopher L. & McLaughlin, Eoin, 2021. "Death, demography and the denominator: Age-adjusted Influenza-18 mortality in Ireland," Economics & Human Biology, Elsevier, vol. 41(C).
    18. Gallardo-Albarrán, Daniel & de Zwart, Pim, 2021. "A bitter epidemic: The impact of the 1918 influenza on sugar production in Java," Economics & Human Biology, Elsevier, vol. 42(C).
    19. Guillaume Morel & Magali Jaoul-Grammare, 2023. "Do Pandemics Impact Macroeconomic Variables? A Cliometric Approach," Working Papers of BETA 2023-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    20. Masato Shizume, 2022. "The Great Influenza Pandemic in Japan: Policy Responses and Socioeconomic Consequences," Discussion Paper Series DP2022-27, Research Institute for Economics & Business Administration, Kobe University, revised Oct 2022.
    21. Aziz N. Berdiev & James W. Saunoris, 2021. "Do Disease Epidemics Stimulate or Repress Entrepreneurial Activity?," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(4), pages 464-486, October.
    22. Vincent Geloso & Jamie Bologna Pavlik, 2021. "Economic Freedom And The Economic Consequences Of The 1918 Pandemic," Contemporary Economic Policy, Western Economic Association International, vol. 39(2), pages 255-263, April.
    23. Sara Boni & Francesco Ravazzolo, 2022. "A Structural Analysis of Unemployment-Generating Supply Shocks with an Application to the US Pharmaceutical Industry," BEMPS - Bozen Economics & Management Paper Series BEMPS94, Faculty of Economics and Management at the Free University of Bozen.

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    More about this item

    Keywords

    Pandemics; Spanish flu; Real wages; Returns to capital;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I00 - Health, Education, and Welfare - - General - - - General
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative

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