Working Paper: CEPR ID: DP14753
Authors: Sergi Basco; Jordi Domenech; Joan R. Roses
Abstract: This paper examines the impact of a pandemic in a developing economy. Measured by excess deaths relative to the historical trend, the 1918 influenza in Spain was one of the most intense in Western Europe. However, aggregate output and consumption were only mildly affected. In this paper we assess the impact of the flu by exploiting within-country variation in “excess deaths" and we focus on the returns to factors of production. Our main result is that the effect offlu-related “excess deaths" on real wages is large, negative, and short-lived. The effects are heterogeneous across occupations, from null to a 15 percent decline, concentrated in 1918. The negative effects are exacerbated in more urbanized provinces. In addition, we do not find effects of the flu on the returns to capital. Indeed, neither dividends nor real estate prices (houses and land) were negatively affected by flu-related increases in mortality. Our interpretation is that the Spanish Flu represented a negative demand shock that was mostly absorbed by workers, especially in more urbanized regions.
Keywords: pandemics; spanish flu; real wages; returns to capital
JEL Codes: E32; I00; N10; N30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| excess death rate (J17) | real wages (J31) |
| excess death rate (J17) | labor supply and demand (J20) |
| excess death rate (J17) | returns to capital (E22) |
| real wages (J31) | economic effects of the flu (F69) |
| demand shock (E00) | real wages (J31) |
| economic effects of the flu (F69) | labor (J89) |