COVID-19 Impact on Inequality: What does the Latest Analysis Show Us?
By Max Lawson
Coronavirus and inequality; what is the latest?
Last year at the Annual Meetings of the World Bank and IMF there was a lot of talk about the impact of Coronavirus on inequality levels; in short a widespread agreement that the likelihood was that Coronavirus would see an increase in inequality in most places.
There was a stark contrast with the Annual Meetings that just finished; inequality was barely discussed. It perhaps did not help that IMF boss Kristalina Georgieva was fighting to keep her job, but nevertheless any analysis of the inequality impacts of Covid-19 was largely absent from the IMF World Economic Outlook and the press statements of the World Bank and IMF.
There were however two excellent and interesting blogs put out by the poverty and inequality people at the World Bank in early October however, which didn’t get much airtime. I thought it might be good to highlight their main findings.
The primary source of data on poverty and inequality are household surveys. These have pretty much ground to a halt in most nations during the Covid-19 crisis. So, working out what has happened to poverty and inequality must be based on projections.
The Bank uses what we already knew about incomes and poverty in each country before the crisis, and then uses the most recent growth projections to calculate the fortunes of each 10% of the world population. It basically treats the world as if it was one nation and its whole population laid out by income.
Because of the failure to secure enough vaccines for most of the developing world, the rift between the fortunes of richer nations and those of the rest of the world is growing. This is reflected in this measure of global inequality because the majority of those with higher incomes live in richer countries.
For a long time, driven largely by the rapid growth of per capita incomes in China, the inequality gap between rich nations and poor ones has been contracting and with it global inequality. Covid-19, and notably the uneven recovery from it due to vaccine apartheid, has reversed this trend – the gap is growing for the first time in a generation.
In the diagram above the X-axis goes from the globally poorest to the richest. You can see that in 2020 (the blue line) globally the poor are projected to lose more of their income than the rich, but not substantially more. This reflects the fact that growth in rich nations, where most richer people live, was hit hard as well as growth in developing nations.
In 2021 this has not been so much the case as rich nations, with high vaccination rates, have seen their growth rebound. Therefore, the red line is far steeper and inequality is set to increase. In 2021 the richest two deciles on average are expected to recover nearly half of their 2020 losses, while the poorest two deciles on average are expected to further lose 5% of their income.
The team doing this projection by the World Bank are keen to point out that this is an exercise based entirely on the differential growth rates of nations. It does not consider any change in “within country” inequality, that is, the gap between rich and poor people in each nation.
Again we will need household surveys and other measures to concretely show this “within country” inequality. That will take time. Nevertheless, it is extremely likely that we will see an increase in economic inequality within countries all over the world.
For our Davos paper in January we surveyed 295 economists from 79 countries, including the leading lights as Jayati Ghosh, Jeffrey Sachs and Gabriel Zucman. 87% of them expected that income inequality in their country was either going to increase or strongly increase as a result of the pandemic. This included economists from 77 of those 79 countries. The team at the Bank agree and show other evidence from surveys they have carried out that support this.
A few countries may have bucked the trend; the big increases in payments to the poorest people during the pandemic in both the US and Brazil seem to have had a very positive impact on reducing poverty. But these examples are the exception, especially in developing nations that had very little to spend on large-scale social protection. And these measures are also temporary. Witness the huge fight in the US now about passing Biden’s $3.5 trillion dollar package that would make some of these measures permanent, and with that concretise this miraculous and major reduction in poverty in the United States which has seen 3 million children exit poverty in the past few months.
In the developing world, the scale of this increase in inequality and the extent to which it is either tackled or inflamed will depend on a lot on the economic policies adopted in the months and years ahead. If most developing nations are forced to undertake some level of austerity, often under the influence of the IMF, then this will add gasoline to the Covid-19 inequality fire. Our excellent research from last year shows that since the pandemic was declared in March 2020, 76 out of 91 IMF loans – 84 per cent – that were negotiated with 81 countries actively push for belt-tightening conditions that could result in deep cuts to public healthcare systems and social protection.
Analysis for our West Africa Commitment to Reducing Inequality index, published this week, found that IMF projections for 14 countries for which there are data show that the combined reduction in the region’s government budgets is expected to be $26.8bn, with the largest cuts in 2023 and 2024. This would be enough money to vaccinate every West African and provide one year of quality primary education to more than 71 million of the children living there.
It seems pretty much certain that Covid-19 will leave a legacy of supercharged inequality – both between countries and inside them – which is really a terrible thing. We must fight to stop a new wave of austerity making this a whole lot worse.
The importance of making fighting inequality a bit boring
Inequality and the fight against it is generally pretty interesting in my view, although of course I am biased. For me it is far more interesting that fighting poverty, because it forces us to ask about those who have, not just those who have not. It immediately raises issues about the nature of wealth, power and influence.
These are contentious topics. Throwing rocks at billionaires is both hugely fun and hugely interesting.
I think this is vitally important, as it is fundamentally only by shifting public opinion and stirring public anger at the grotesque levels of inequality in our modern world that will likely change it.
But at the same time, it is important to open another front in this struggle against inequality – making the requirement for more equal societies more and more mainstream. To make concern with inequality, if not more boring, then much more accepted as “normal” for anyone, across the political spectrum, interested in human development and progress.
Over the last decade, the IMF have led the charge on this mainstream front, with a number of powerful and measured interventions that make the substantive and evidenced based case that inequality is a problem no one can ignore.
The agreement of a separate Sustainable Development Goal 10 on reducing inequalities was also a big victory (certainly in its optics, though it remains a relatively weak one).
Since then, many have been trying to continue to push this normalisation of inequality and inequality analysis. The work of Thomas Piketty and his colleagues at the World Inequality Lab has been instrumental. Our own contribution has included the Commitment to Reducing Inequality index, where we have sought to show practical steps that can be taken and are being taken by nations to reduce the gap.
This last couple of weeks saw a couple of major milestones in this direction. The European Commission released a comprehensive took kit and guide for how to address income inequality using development aid. Given they are one of the biggest donors in the world, that is a big deal.
At the same time the Pathfinders initiative released their flagship report. The Pathfinders initiative works with governments across the world to raise the importance of tackling inequality and exclusion and explore the positive policies that can successfully reduce the gap. Among other interesting things, the report also has some great new polling from across the world showing how there is widespread public support for progressive policies.
For me all this work, to make the issue of inequality and action to tackle it part of the normal, everyday work of development, is vitally important. If we are to make the world a more equal place, then the urgent necessity of rapidly reducing the gap and implementing policies to do so needs to be fully internalised and understood by policy makers across the world, not just activists and campaigners.
Have great weekends everyone.
- Featured image: Photo by Taylor Brandon on Unsplash
- Screenshot, Figure 1: Global income losses due to the Covid-19 pandemic. Source: Nishant Yonzan, Christoph Lakner and Daniel Gerszon Mahler, ‘Is COVID-19 Increasing Global Inequality?’ (World Bank Blogs, 2021) < https://blogs.worldbank.org/opendata/covid-19-increasing-global-inequality > accessed 23 October 2021.
- Screenshot, “Inequality and exclusion in their own words…” This is an animation accompanying the Pathfinders’ flagship report.