The impact of the COVID-19 pandemic on poverty and inequality in Mexico

Abstract

The objective is to quantify the effect of the COVID-19 pandemic on employment, poverty and inequality in Mexico. The methodology is based on a probit model to identify individuals at risk of employment loss, whose earnings are set to zero in ENIGH 2018 to match changes in employment and earnings observed in between December 2019 and the May 2020 according to ENOE and ETOE surveys, respectively. MEXMOD, Mexico’s microsimulation model, is used to simulate tax-benefit policies based on the pre-COVID and COVID-scenarios. The results show that there was a loss of 12.1 million jobs. Poverty reached 60.16% and extreme poverty reached 29.73%; inequality grew 8.2%. It is recommended to strengthen social policy with extra funding (taxing the rich) to achieve greater redistribution. The limitation is that income distribution is held constant as we do not have ENIGH 2020. The originality is to offer timely measures of poverty and inequality using microsimulation techniques to overcome the lack of data during the pandemic. The research concludes that there are not automatic stabilizers to cope COVID-19 negative effects and cash-transfers are not sufficient to do so.