COVID-19 Labour Market Shocks and Their Inequality Implications for Financial Wellbeing
Ferdi Botha, John P. de New, Sonja C. de New, David C. Ribar, and Nicolás Salamanca.
The COVID-19 pandemic has spawned an unprecedented international health and economic crisis. Although some aspects of the macroeconomic consequences have been considered, we know much less about the extent to which the crisis has affected individuals’ financial wellbeing or how people are coping financially. Using an online survey of Australian residents, we investigate how labour market shocks (such as experiencing salary and working hour reductions, or becoming unemployed or having to apply for unemployment benefits), as a direct results of COVID-19, are associated with Australians’ financial wellbeing. We focus specifically on financial wellbeing rather than income. Financial wellbeing can range widely within income levels and is arguably a more direct measure of people’s enjoyment of their income, their consumption, and their financial worries or constraints. Financial wellbeing as a validated multi-item measure captures the extent to which individuals feel that they are able to meet their financial obligations, to have the financial freedom to enjoy additional consumption and other fulfilling choices, to control rather than be controlled by their finances, and to have security and be free from financial anxiety, now, in the future and under possible adverse circumstances. Experiencing a reduction in working hours and earnings, entering into unemployment or having to file for unemployment benefits during the pandemic are strongly associated with decrease in financial wellbeing of roughly 29%, despite various government interventions to reduce such effects. We also find that the negative COVID-19 labour market effects are felt most by people who already have low financial wellbeing. Furthermore, the findings suggest potential dramatic increases in financial wellbeing disadvantage and inequality.
August 27, 2020