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Plagues: Effect on the Economy and Inequality

Written by Lawrence Jean-Louis | Sep 10, 2024 12:00:00 PM

Following up on The Black Death: A Pandemic Along the Silk Road, this week we’ll how pandemics affect the economy by reducing the workforce, and potentially income inequality.

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The history of plagues shows that severe pandemics can deeply affect economies, and that their consequences can be persistent and be felt for centuries.

Pandemics have been estimated to affect the economy both positively and negatively. They can reduce the workforce and human capital, have mixed effects on investment and savings, but potentially positive consequences for innovation and knowledge development.

Following the Black Death, cheaper literature expanded literacy, techniques and ideas were more widely spread, and laying the groundwork for the Reformation.

The Plague took away both the skill and experience of previous workers and the parent’s investment in the education of their children. Moreover, high turnover increased labor demand, further reducing the productivity of new workers in the long term. Low labor supply increased wages, as land rents decreased.

The richest 10% of the population lost hold of 15%-20% of overall wealth. It would take three centuries before they could regain control of overall wealth to the same extent they had in the pre-plague period.

Investing in improved sanitation, provisioning of clean water, and better urban infrastructure can reduce the frequency of human contact with pathogenic agents. Building strong health systems and supporting proper nutrition will help ensure good baseline levels of health, making people less susceptible to infection.

Interconnected trade networks and cities have made societies both richer and more vulnerable, from antiquity to the global economy of the present.

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