The Redistributive Effects of Pandemics: Evidence of the Spanish Flu

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 of flu-related “excess deaths” on real wages is large, negative, and short-lived. The effects are heterogeneous across occupations, from null to a 15 per cent 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.