COVID-19 and economic inequality

COVID-19 and economic inequality

Global economic inequality has been on the rise for a long time. Renowned economist Branko Milanovic is one of the world’s leading experts in inequality. He says that globalization has deepened economic inequality in developed nations, with the richest 1% of people on the planet benefitting the most. From 2008 to 2019 the number of billionaires has doubled, while half the world lives on less than $5.50 a day. According to the World Bank, countries with the highest economic inequality are South Africa, Namibia. Botswana, Zambia, and the Central African Republic. According to the IMF changes in global trade and technology have shifted industries and jobs around on the map, but the economic gains within countries are not well-shared. COVID-19 and economic inequality are discussed in this article.

The most widely-accepted metric of inequality is the Gini coefficient, used to create the Gini index. It is named after Italian statistician Corrado Gini who developed the method in the early 20th century. The index measures the distribution of a nation’s wealth on a score from 0-100. A score of 0 would mean perfect equality while 100 would represent absolute inequality. Some economies whose Gini coefficients have increased during COVID-19 are Hong Kong, US, and South Africa.

COVID-19 and inequality

COVID-19 exacerbated inequalities between countries and within countries. The least developed economies have poorer public healthcare systems. These are less prepared to deal with the pandemic. Populations living in these conditions are more vulnerable to contagion. They also have fewer resources than advanced economies to respond to the economic aftermath.

According to an OXFAM report coronavirus widened the existing inequalities of wealth. Hundreds of millions of people were driven into poverty while the richest individuals and corporations continued to thrive. COVID-19 made it harder for low income workers to earn livelihoods. The lockdowns had a disproportionately worse impact on the livelihoods of low-income workers. Daily wage and casual work employees were faced with the inability to travel to their places of work. They lost their livelihoods for a significant length of time. According to the World Economic Forum, higher-paid and white collar workers are working from home. Lower-paid blue collar workers typically do not have this option. The forum stated that 3 in 4 households suffered declining income since the start of the pandemic, with 82% of poorer households affected.

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Regional inequity

The pandemic is also deepening geographic income inequality. People living in remote and inaccessible locations have been more vulnerable to the health and economic impacts of the pandemic. Even within rich countries the lower income neighborhoods are most at risk. For example in New Orleans people living in poorer neighborhoods were 2.5 times more likely to die from COVID-19 than residents of affluent neighborhoods. The same is true on a global scale. According to the World Bank 23 million of the people who were pushed into poverty are in Sub-Saharan Africa. Another 16 million are in South Asia. These statistics might be even worse than initially envisioned. 

Alleviating economic inequality

Reducing inequality is the most important step to increasing the population’s well-being. According to OXFAM inequality makes it harder to reduce poverty. It undermines democracy and good governance. A reduction in inequality helps build sustainable economies, promotes economic progress, and brings stability. According to the UN it is important to empower and promote inclusive social and economic growth within countries. Reducing inequality of income and ensuring equal opportunities is possible. It requires eliminating discriminatory laws, policies, and practices. Other ways to reduce inequality are to increase minimum wage, widen the income tax base, build assets for working families, invest in education, make the tax code more progressive, and put an end to residential segregation.

A lesson from Chile

This Latin American economy has taken major steps in the right direction. Chile’s president Pinera has pledged to increase the minimum pension by 20%, fast-track a law to introduce state critical illness cover, cut prices of medicines for the poor, and guarantee a minimum wage of $480 a month. Chile is home to vast communities of expats. There are also large communities of expat Chileans elsewhere. These migrants regularly send remittances to their home countries via the Ria Money Transfer App and other channels. The new measures are good news for all of them.

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In October 2020 a referendum was held in Chile following mass protests. One of the key demands of the protesters was to reform the current ‘dictatorship-era’ constitution. The present constitution is said to have entrenched inequalities in terms of the control over health, education, housing, and pensions. The referendum was held to ask Chileans if they wanted a new constitution. 78% voted in favor. Chileans also decided that the new constitution will be drafted by a body whose members would be elected by popular vote (not members of congress). The new constitution is a bold move. It is also a decisive step to end of inequality in Chile.