Has The Pandemic Widened The Already Huge Inequality In Income Around The World?

 

The global economy could shrink by up to 1 per cent in 2020 due to the coronavirus pandemic, a reversal from the previous forecast of 2.5 per cent growth, the UN has said, warning that it may contract even further if restrictions on the economic activities are extended without adequate fiscal responses.

The pandemic induced lock down, has a far reaching effect on small size businesses who don't have the financial backing to sustain whilst they are out of business. 

Mo Boudreaux, a chef based in London, has been working in the restaurant business for over a decade, but the coronavirus pandemic has left him without a job.

The large catering events he worked for were put on hold, and all restaurants had to close their doors.

“The overriding sentiment is fear,” Boudreaux told about his colleagues, who are anxious the industry will not fully reopen, which could in turn lead to additional layoffs.

Boudreaux trained as a chef and worked in different restaurants in London and Dubai before becoming self-employed a few years ago to work at private events. He is among those that are under significant pressure because of the economic crisis brought on by the virus.

Those who are self-employed are seen as vulnerable as they tend to receive less government support than other sections of the workforce. The U.K. government would also class a chef as being a low-skilled job, despite criticism, and would therefore be part of a group that is unlikely to be able to work from home.

As the situation deteriorates for these two groups of workers, international organizations expect income inequality — the gap between the wealthiest households and the poorest — to get worse in 2020 due to the crisis.

Malhar Nabar, division chief at the IMF’s research department said “The pandemic and these (containment) measures have affected the lower-skilled workers to a greater extent than higher-skilled workers, and essentially this is because lower skilled workers often don’t have the option of teleworking or videoconferencing,” 

“In that context we worry that the labor market outcomes, the employment prospects, the wage distribution that we see, all of that is going to be more skewed towards the high skilled workers,” Nabar said.

In addition, he noted that in emerging markets and developing economies, the crisis has heavily impacted migrant workers too, “who often work far away from their support networks (and) who don’t often have large pools of savings.”

The International Monetary Fund warned back in April that inequality was likely to rise during the pandemic. Gita Gopinath, the Fund’s chief economist, said at the time that “when you have a deep recession of this kind, there is always unfortunately tremendous loss of income for people at the lower end of the income scale.”

The institution expects the world economy to contract by 4.9% in 2020, with some nations in both developed and emerging worlds seeing gross domestic product (GDP) drops above 10%.

Data available prior to the pandemic showed us that South Africa, Brazil, Zambia and Colombia were among the most unequal societies worldwide in terms of income. Meanwhile, between 1990 and 2015, Guinea-Bissau, Costa Rica, China and the United States actually saw income inequality getting worse.

There isn’t yet any data available to show the full impact of the pandemic, but with unemployment levels going up and poverty rates increasing, the expectation is that the gap between the richest and the poorest will widen in many parts of the world.

The World Bank has already said that poverty rates are going up for the first time since 1998, due to the coronavirus crisis.

Under estimates made in June, it showed that Covid-19 could push 71 million people into extreme poverty. This means that these people will be living with or less than $1.90 per day. Under its worst-case scenario, Covid-19 and the associated lockdowns could send as much as 100 million into extreme poverty.  

Income and Financial Impacts

In addition to the direct health impacts that COVID-19 is having on financially vulnerable people, it is also having an outsized impact on their income and personal financial situation. Financially vulnerable people often have jobs that must be done in person and are not able to work from home. This is in stark contrast to wealthier workers who are able to continue working remotely and may have seen less of an impact to their income. 

For people unable to work remotely, the mass closures of business and issuance of stay at home orders have been devastating. Tens of millions of people are temporarily or permanently out of work as businesses have been forced to close or severely cut their hours. 

With a loss of income, financially vulnerable people are also finding their personal financial situation becoming more and more precarious. For people without enough savings to last a few months, loss of income even for a few weeks can lead to enormous consequences such as being unable to make their rent or mortgage payments or put food on the table. This is not something that wealthier people who may have larger savings will face after just a few weeks of lockdown, and so is another example of how COVID-19 disproportionality affects the financially vulnerable.

What to do about it?

Most governments have embarked on large fiscal stimulus to deal with the crisis. However, there are concerns these measures are not broad enough to support the most vulnerable.

COVID-19 has put a spotlight on the financially vulnerable, and help is needed to ensure hundreds of millions of people can get through this pandemic. Governments around the world are taking action to do exactly this. Here are some examples:

• The United States has passed a multi-trillion dollar economic stimulus bill, which you can learn more about at the IRS website .
• Australia announced a similar economic stimulus package of $17.6 billion, which you can learn more about at their government website .
• Brazil has lowered their interest rates and increased the credit supply to financial entities by BRL 1 trillion. You can learn more about Brazil’s economic actions to combat COVID-19 at their website .
• Those who are self-employed in the U.K. have been able to apply for a three-month lump sum in July and a second and final payment will be available for application in August. However, the U.K. Treasury has signaled that, unlike those in full-time jobs, self-employed people are more likely to still be able to work.

But something that will remain true long after this pandemic is that financially vulnerable people are always at more risk for "black swan" events—major negative events that come with almost no warning, such as pandemics and natural disasters. So, it is more important than ever that financially vulnerable people receive help to improve their financial situation, especially during this pandemic. 

• Research if your government is offering any financial help that you can use to help you through this pandemic. Government websites, like the ones listed above, will explain the programs available to you and how you can apply to them.
• Contact your creditors if you have any outstanding loans, credit cards, etc. that you are struggling to pay. Many financial institutions are offering options for people to delay payments if they are being impacted by COVID-19.
• If you have lost your income, you may be able to find a new—maybe temporary—job in some of the industries that are booming. For example, delivery companies are experiencing skyrocketing demand and hiring hundreds of thousands of people.

Finally, governments will also need to retrain workers, so they are more easily employable by surviving and new businesses.