Name: How to fix rising income inequality during Covid-19 | CNBC Reports
Uploaded: 2020-09-03T19:35:09.000Z
Duration: 9 min
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The coronavirus has caused severe economic harm all over the world

as governments take unprecedented measures to control the spread of Covid-19.

These include lockdowns and social distancing measures

deemed necessary to contain the virus, affecting businesses across many industries.

With unemployment levels soaring, international organizations expect

the income gap between the richest and the poorest to get even wider.

So, what can governments do to tackle income inequality?

I just took a massive hit, my money just went from

from making a really, really decent salary every month, basically to zero.

Me, it's impacted me massively because I don't have limited companies

to be able to apply for these bounceback loans and whatnot, and even these loans,

they're basically just steps that you have to pay back with interest.

Mo is a private chef based in London who has worked in the restaurant business for over a decade.

When large catering events were put on hold and much of the wider hospitality industry

went into limbo during lockdown, he found himself out of a job.

The ones that were working full time for hotels or for restaurants,

they were quite lucky because they were able to get furloughed,

with 80% of their salary still being paid, but the guys that I have been around

for the last few years specifically, they have all been hit really, really hard.

There's been no help coming from anyone really.

Self-employed and low skilled workers face the highest risks in the current economic climate.

While working from home is the norm for many, it is a luxury that some workers cannot afford,

especially if their job involves manual labour.

Without universal access to benefits such as healthcare and sick leave,

the pandemic has left this group of workers in a particularly vulnerable situation.

Essentially, this is because lower skilled workers often don't have the option

of teleworking and of videoconferencing, the way we are doing right now,

whereas high skilled workers can continue functioning to a relatively high degree from home

through all the software that we have at our disposal right now.

So, 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 end up to being more skewed

towards the high skilled workers, they tend to be benefitting more from this current environment.

Migrant workers are also vulnerable to the current economic shock.

In some emerging market and developing economies, we have seen that the brunt of this crisis

has really fallen quite heavily on migrant workers who often live quite far away

from their traditional support networks, who don't often large pools of savings

that they can dig into to smooth their spending, and they are facing a much larger impact of this crisis

than even the low skilled formally employed workers within those countries.

To better understand the widening gap between the rich and the poor,

it is useful to look at income inequality trends, unemployment expectations and poverty levels.

Among OECD countries, the unemployment rate is expected to top 9% in 2020, from 5.4% in 2019.

And this figure could rise further in the event of a second wave of infections among the 37 OECD nations.

However, the outlook is gloomier when looking at individual countries.

For example, Spain is expected to see its unemployment rate increase to 19.2% this year.

And in Brazil, which is not a member of the OECD, the jobless number could jump to 14.4%.

To put things into perspective, unemployment rates worldwide have gone through the roof

since the start of the pandemic, surpassing the levels seen during the global financial crisis.

In addition, the OECD does not expect an improvement in the labor market until after 2021,

and many economists foresee unemployment rates increasing in coming months.

Although a popular target for criticism, globalization hasn't led to rising income inequality in all countries.

In 1990, the countries on the right-hand side of this chart had a wider gap

between the richest and the poorest than those on the left.

The nations above the line saw income inequality increase between 1990 and 2015,

while the countries below saw a decrease.

Although inequality has fallen in some parts of the world,

the income gap has widened over the years in some of the world's most populous countries

such as the U.S., India, China and Indonesia. And while income inequality remains high in

Latin America and the Caribbean, the gap has narrowed. Conversely, the gulf has widened in most

advanced industrial economies, even though the levels of income inequality remain low.

This suggests that employing the right policies can make a difference in narrowing the divide.

While it's too early to precisely predict the impact of the pandemic on income distribution,

recent estimates from the World Bank suggest that increased income inequality and higher rates of poverty

will set the course for the future after the pandemic.

For the first time since 1998, the World Bank expects poverty rates to rise

because of the coronavirus. According to their estimates, Covid-19 could push

71 million people into extreme poverty, which is defined as living with $1.90 or less per day.

In the worst-case scenario, Covid-19 could push as many as 100 million into extreme poverty.

These estimates suggest that South Asia is likely to see the sharpest increase in poverty,

So what can governments do to address these economic challenges?

Leaders are being urged to keep providing assistance to the most vulnerable for the foreseeable future,

whilst carefully lifting some of the most stringent lockdown measures.

If these measures are removed too soon, then some of the problems that they have

been basically minimizing in the first phase would become much more evident.

If they are kept for too long and for everyone, then, of course,

there would some more disincentive for workers or companies to regain full activity.

It is also not just about individuals, but employers too.

Governments may also need to provide increased support

to some of the hardest-hit industries so they can keep their employees.

If a government has in mind implementing new policies and using this additional money

to reduce income inequality, where should that money go?

It's very important to channel the resources and the support to those who need it the most.

Think about, I don't know, restaurants, tourism activities, entertainment and so on and so forth.

These are sectors that still need to be supported, while other activities:

manufacturing, agricultural and other things are actually reopening

and therefore they actually need less support. I think perhaps it is even more important within sectors,

there are groups of individuals, households, and companies that need more support than others.

But this can be a challenge without the right infrastructure.

While most people in advanced economies have bank accounts and governments have existing systems

to distribute benefits, it is not the case everywhere.

There are other economies where a lot of people may not have a formal presence on the tax registers,

they don't have these IDs or they don't have bank accounts, and that's a big challenge.

And those newly unemployed workers will need assistance with finding new jobs.

An important piece in the jigsaw puzzle is having the right tools

to stay relevant in the digital age, be it through learning new abilities

Here it will be important to have in place retraining and reskilling programs

to facilitate workers' acquisition of new skills so they can get employment in different sectors.

Aside from the public health emergency, Covid-19 threatens to undo

years of economic progress across the world.