COVID-19, Labor Market Shocks, Poverty in Brazil : A Microsimulation Analysis
In this note we estimate the short-term economic impact of the COVID-19 crisis on Brazilian families vis-a-vis labor shocks. The analysis, using a microsimulation model which incorporates subnational shocks from a computable general equilibrium gro...
| Main Authors: | , , |
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/883191597258941357/COVID-19-Labor-Market-Shocks-and-Poverty-in-Brazil-A-Microsimulation-Analysis http://hdl.handle.net/10986/34372 |
| Summary: | In this note we estimate the short-term
economic impact of the COVID-19 crisis on Brazilian families
vis-a-vis labor shocks. The analysis, using a
microsimulation model which incorporates subnational shocks
from a computable general equilibrium growth model, shows
that over 30 million workers in Brazil may see significant
reductions in their labor income in 2020 due to the COVID-19
pandemic. Two-thirds of these workers are informal workers
or own-account workers, groups without access to
unemployment protection. These household shocks would reduce
average per capita income by 7.6 percent, with the largest
impact on the second and third quintiles of the income
distribution. These income shocks are inequality-increasing:
without any mitigation measures, inequality would increase
by 4 percent. The country’s first line of defense, its
existing unemployment insurance system, reduces the income
shock to 5.3 percent. Even so, an additional 8.4 million
Brazilians could fall into poverty. The policy responses
announced by the government, and particularly the Auxilio
Emergencial (AE) transfer, have the potential to fully
absorb the labor income shock for the poorest 40 percent and
reduce poverty. Yet, these results reflect annualized
income, obscuring the sharp reduction in monthly income if
demand shocks persist after the AE ends. Looking towards the
next phase of the response, considering extensions of AE
that are either less generous or more restricted provide a
fiscally prudent approach for continuing to support Brazil’s
most vulnerable. |
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