Poverty, the Middle Class, and Income Distribution amid COVID-19

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Poverty vulnerability has been particularly recognized in the wake of the impact of the novel coronavirus (COVID-19) that is likely to yield declines in incomes because of reduced economic activities. In this study, an updated profile of the poor in the Philippines, as well as various segments of the income distribution, based on the 2018 Family Income and Expenditure Survey is provided. The study also follows the typology of the low-, middle-, and high-income classes proposed in previous research reports and simulate the likely effects of contractions in per capita income on poverty and the entire income distribution amid the COVID-19 pandemic. Due to the unavailability of required data to estimate the impact of COVID-19 on poverty and income distribution, simulation scenarios and assumptions were used. The study finds that in a medium case scenario of declines of incomes by 10 percent across the entire income distribution, the number of poor Filipinos can increase by 5.5 million, but with the emergency financial subsidies (i.e., the social amelioration program and the small business wage subsidy in. place) that targeted 90 percent of households, the worsening of poverty conditions has been managed so that only 1.5 million would fall into poverty, i.e., 4 million less than expected number of Filipinos falling into poverty. Further, low-income classes would, on average, transition only a quarter year more than the baseline of 21.25 years for this medium-case scenario if, after the pandemic (and an assumed V-shaped economic recovery), their incomes would have a constant annual growth of 2.5 percent. However, under tougher conditions of income contractions of 20 percent, simulation shows that the average time for low income Filipinos to move up into middle income class would increase by three years from baseline figures. This is assuming that social protection cash assistance is also provided. These results, though relying on simulation scenarios and simplistic assumptions, illustrates the importance of providing social protection not only for the poor but also for segments of the income distribution that could likely to fall into poverty due to reduced economic activities during this COVID-19 pandemic. Among others, the study urged the Philippine Statistics Authority to start reviewing its official poverty measurement system, including the current use of income over expenditure as the poverty metric, as well as its poverty line setting methodology given the changes in income and expenditure patterns in the past decade (prior to the onset of COVID-19) that improved living conditions.