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The Impact of COVID-19 on Labor Markets and Inequality

Joe Piacentini, Harley Frazis, Peter B. Meyer, Michael Schultz, and Leo Sveikauskas


This paper surveys economic literature largely from 2020 and 2021 on how the COVID-19 pandemic and responses to it affect U.S. income inequality. Established trends of growing inequality may continue roughly as before, involving new technologies, international trade, and the growth of “superstar” firms.   Employment, earnings, and schooling were affected differently across demographic groups and occupations.  The pandemic disrupted lower-paid, service sector employment most, disadvantaging women and lower income groups at least temporarily, and this may have scarring effects. Government policies implemented in response to the pandemic offset much of the effect on income.  Higher-paid workers tend to gain more from continuing opportunities to telework. Less-advantaged students suffered greater educational setbacks from school closures. School and day care closures disrupted the work of many parents, particularly mothers. We conclude that the pandemic is likely to widen income inequality over the long run, because the lasting changes in work patterns,  consumer demand, and production will benefit higher income groups and erode opportunities for some less advantaged groups. Telework has increased permanently. High-contact jobs and services may continue to face reduced demand and increased automation. School disruptions have been worse for lower-income students and are likely to have lingering negative effects, which may widen future inequality within more recent birth cohorts. The history of the 1918 flu shows that the effect of a pandemic on inequality in income, education, health, and wealth depends on the nature of the pandemic and on behavioral and policy responses.