Will this be the first time in recorded history inequality has risen everywhere at once?
Senior Policy Advisor, Oxfam America
January 26 2021
The pandemic is expected to widely increase income inequality within countries., say the IMF, World Bank, and the OECD. An Oxfam survey of 295 economists in 79 countries confirms it; 87% of respondents expect income inequality to increase in their country as a result of coronavirus.
Given that the pandemic caused an economic crisis in all countries – albeit of varying severity – could this be the first time that we witness a rise in inequality everywhere since inequality data started to be collected?
We have seen a general decline in inequality before; the two world wars and the great depression have been great levelers. We came close to a general increase in the 1980s and 1990s, when neoliberal policies jolted inequality up in all Anglo-Saxon countries at the same time as the end of communism in the former Soviet block and market reforms in China created new classes of haves and haves not. But not all countries in Europe, Latin America, the Middle East and Africa were affected.
There is some evidence of a broad-based increase in inequality at the beginning of the pandemic in Latin America. Two other multi-country studies of the early impact of the pandemic – one of China and five high-income countries and the other of fifteen African and Asian countries – offer a more nuanced picture. It seems that two things are going on.
First, in developing countries rural areas were less affected by the crisis than cities. The World Bank notes that “those at the bottom tend to be involved in agriculture, self-employment, or in essential service occupations and keep working, whereas those in the middle of the distribution may be employed in transport, hospitality, and retail services, which are more affected by job closures as a result of the pandemic.” In low-income countries, “those in the middle” are poor. Conclusions about the impact of the pandemic on inequality may depend on the choice of inequality measures.
Second, the huge government stimulus spending seems to have dampened the sharp income losses of poor people in some rich countries at the beginning of the pandemic. Again different conclusions could be reached depending on how income inequality is measured, before or after fiscal policies.
The pandemic will almost certainly increase inequality in the long term for a range of reasons. The better-off are more likely to have the resources to bounce back. The pandemic is likely to have lasting impacts on poor people who have coped by selling productive assets or by cutting their food consumption. Poor children are more likely to have left school permanently. Small businesses that employ proportionately more poor people are more likely to close permanently.
The pandemic has also further entrenched gender inequalities. Women disproportionately work in informal and precarious jobs that have been hardest hit by the crisis. They have borne the lion’s share of the extra care work for children during lockdowns. Many risk to leave the job market permanently. 112 million fewer women would be at high risk of losing their jobs if women and men were equally represented in sectors hardest hit by the pandemic. Racial inequalities are another source of structural inequality exacerbated by the crisis. The virus spread more vigorously among some racial and ethnic groups that were marginalized to begin with. In the United States close to 22,000 Latinx and Black people would still be alive if these communities’ Covid-19 mortality rates were the same as White people’s.
The crisis has quickly exacerbated wealth inequality. While poor people dipped into their savings to cope with the crisis, wealthier teleworkers increased their savings during confinement as shops were closed. Wealthy individuals who can afford investment advisors have greatly benefited from the V-shaped recovery in stocks.
It took just nine months for the fortunes of the top 1,000 billionaires to return to their pre-pandemic highs. But it may take over a decade for poverty rates to recover from the crisis.
Only vigorous government action can hasten the recovery and prevent inequality from rising everywhere. Governments should continue to spend vigorously on health care, social protection and education and pay for it with higher taxes on corporations and wealthy individuals. They need to increase minimum wages, enforce labor rights for all workers, and hold corporations accountable. Developing countries need aid, debt relief, and Special Drawing Rights.
Read the full Oxfam report, “The Inequality Virus” here.