• Many governments have had to make tough decisions to stem the spread of COVID-19.
  • Policies to implement lockdowns were highly effective at saving lives but cost households in terms of financial impact on livelihoods.
  • Three World Bank experts assess the relationship between stringent lockdown measures and loss of income in Latin America and the Caribbean.

Faced with this dilemma, policymakers need to aim for an elusive target that hits just the right middle ground. This involves carefully balancing measures like lockdowns or curfews with support for those suffering the most from stalled economic activity. That support comes in the form of social assistance programs like direct transfers to the most vulnerable and in need.

Finding the right balance will be essential to promoting an inclusive recovery and preventing negative future knock-on effects for the most vulnerable households. That means designing measures to contain the pandemic during times when infection rates are raging so that economic losses are minimized. Importantly, the measures should be complemented with help for firms, especially small and medium-sized ones, when possible. In addition, some businesses could continue operating under clear safety sanitary protocols.

Unenviable trade-off

Our recent note, Lives or Livelihoods? The Cost of Staying Healthy, outlines this trade-off clearly. Data from the initial waves of the pandemic indicate that tough containment strategies definitely help to flatten the curve. As the figure below shows, the tougher the measures, the flatter the infection rate. Lockdowns, travel restrictions, and social distancing clearly saved thousands of lives.

COVID-19 & Stringency in Latin America and the Caribbean: April – September 2020

COVID-19 & Stringency in Latin America and the Caribbean: April – September 2020
Containment strategies have helped to flatten the curve.
Image: WHO, Coronavirus (COVID-19) Dashboard

The study also illustrates the immense cost that such measures have on people’s livelihoods. Data from the LAC High-Frequency Phone Survey shows that around 17% of the region’s workers lost their employment after initial containment measures were introduced back in March 2020. Not surprisingly, more stringent restrictions are associated with higher job losses, as shown in this figure.

Job Loss vs. Stringency in Latin America and the Caribbean (May 2020)

Job Loss vs. Stringency in Latin America and the Caribbean (May 2020)
More stringent restrictions are associated with higher job losses
Image: Job loss data from High-Frequency Phone Surveys (HFPS)

Responses & Repercussions

Restrictions cost jobs in every country in the region, but the impact varied widely. Countries with lower informality levels and better connectivity to internet services adjusted well to teleworking. For example, job losses in Chile—of only 5%—were six times lower than the 30% seen in Colombia and Peru, despite similar lockdown policies.

Employment losses had an immediate and devastating impact on family incomes across the entire region. About two months into the pandemic, when stringency levels were at their highest, 60% to 70% of households registered a decline in total family income. Peru was one of the most affected countries, with eight out of ten households reporting lower total income compared to the beginning of the pandemic.

Most worryingly, employment losses and reduced family incomes translated into increased food insecurity. Honduras had the highest incidence in May 2020, with 53% of households reporting that they ran out of food due to lack of money or resources. This has serious consequences for long-term nutrition and human capital accumulation that may affect future productivity in the region.

Rightly, governments in the region boosted their non-health spending in 2020 to offset this chain of welfare losses, with some level of success. The additional expenditure helped to increase food security among households, but in most cases could not fully compensate the considerable income losses. Still, the results show that these targeted government interventions can indeed soften the impact on the most affected segments of the population.