Middle East

Why pandemics don’t push up inequality

During the acute phase of the Covid-19 pandemic in the spring of 2020, when most of the population was trapped in their homes, the economy fell into a severe recession, especially to the unskilled and minorities. Moreover, in contrast to the previous recession, unemployment is concentrated in sectors with a high proportion of female workers, justifying the term “withdrawal”.
Therefore, the first sign was that fallout from a pandemic exacerbated inequality. But the next two years show signs that this is not always the case.
For starters, the direct impact of actual or potential unemployment on people’s income has been offset in most developed countries with unprecedented government support.
In the United States, this support took the form of a check that was mailed directly to millions of households. In Europe, most governments have funded large-scale short-term plans, under which the state has submitted a bill to keep businesses temporarily dismissed.
These measures meant that the first unemployment caused by the pandemic did not lead to a decline in income. And those who were most likely to lose their jobs were most likely to receive generous government support.
As a result, disposable income, an indicator of inequality based on total income after considering taxes and government transfers, did not worsen, and in some cases even slightly improved. The most widely accepted gauge of income inequality is the so-called Gini coefficient. It measures how much the observed income distribution deviates from perfect egalitarianism. In the United States, the coefficient remained very high in 2020, but did not increase any further.
This pattern is similar in Europe, and one study found that income inequality decreased from January 2020 to January 2021 in Germany, France, Italy and Spain, the four largest economies of the European Union. understand. According to another study, inequality would have increased significantly without government action, but both the Gini coefficient and the EU’s official poverty index show that the targeted state support programs are neutralizing this early impact. It shows that it has been harmonized.
The results highlight how the state can serve as a last resort insurer by protecting vulnerable groups from unprecedented and unexpected economic shocks. However, although somewhat more gradual in Europe than in the United States, where the rebound is more complete, the government is now shrinking its Covid-19 support scheme as recovery progresses. Does this mean that the pre-pandemic trend towards increasing inequality will resume?
Again, the first sign is that the opposite can be true, and in the post-pandemic world the previous inequality pattern can be reversed. “Drop out” turned out to be a short-term phenomenon, with most unemployment affecting women, lasting only a quarter or two. Another promising sign is that wage shares (shares of total output paid to employees) increased in 2020 and 2021.
Wage share has been declining for a long time, and many explanations have been encouraged. But the recent recovery seems natural. Currently, there are too few workers to manage the existing capital stock. “Building better” is a misnomer. The blockade of Covid-19 did not destroy the capital, but only briefly idled it. Therefore, recovery does not require new capital, only the relocation of what was already available.
However, as US commentators call it “mass layoffs,” the workforce has been effectively reduced, resulting in less work available than before. Companies must offer higher wages to attract the workers needed to increase production.
In Europe, the labor market is less dynamic, but resignations are increasing in most EU member states, despite significant unemployment rates remaining. And the greater need for workers may continue for some time. The pandemic has accelerated the existing trend that it may reduce the demand for unskilled workers, especially in the very long term, but it can have the opposite effect in the short to medium term.
For example, online shopping, which was marginal in most parts of Europe, is now rapidly gaining popularity everywhere. As a result, many of the items that have been put into real shopping carts, packed in bags, and brought back are now collected, packed, shipped, and shipped by others who need to pay for time and effort.
Most of these new roles are low-skilled and could be performed by robots, self-driving delivery vans, or drones in the distant future. However, the prospects for unskilled work look much better than before, as last mile deliveries still require humans for now.
Similarly, a few years ago, some experts predicted a world where robots would do a lot of work. For example, truck drivers can be unemployed by self-driving cars. But today, a shortage of drivers is one of the factors slowing the recovery of the industrial sector from a pandemic.
From an economic point of view, the Covid-19 crisis has so far worked much better than fearing the more vulnerable parts of society. Early employment and income losses have been mitigated with generous state support, and active recovery has led to a significant improvement in the employment outlook for many. When the pandemic enters its third year, at least it should provide an optimistic basis.
— Project Syndicate

* Daniel Glow is a member of the Board of Directors and a prominent Fellow of the Center for European Policy Studies.

http://www.gulf-times.com/story/707487/Why-the-pandemic-might-not-boost-inequality Why pandemics don’t push up inequality

Back to top button