The COVID-19 outbreak has brought, alongside a major health crisis, dramatic economic shocks to European countries. Governments around the continent are taking various measures to face the pandemic while preserving jobs and incomes. With economic activity far below pre-pandemic levels, many households are still witnessing substantial decreases in their earnings.
People have become more concerned about the gap between rich and poor during the pandemic. The global economy is forecast to shrink by 3.5 per cent in 2020, according to the latest estimates by the International Monetary Fund, and numerous studies have shown how the global health crisis has exacerbated economic inequalities. The IMF earlier this year argued that the COVID-19 pandemic is likely to widen wealth gaps in Europe. Policymakers should help end the health crisis globally by supporting economies until the pandemic is over and investing in making economies greener.
Around the world, responses to the first and second waves of the COVID-19 pandemic are understandably focused on reducing infections and fatalities. There are also redoubled efforts to avoid the negative economic consequences of the outbreak, especially in relation to jobs, productivity and growth.
But the pandemic is an economic wrecking ball, with intergenerational consequences. Poverty levels are increasing and inequality is accelerating between and within countries. Surging inequality is dangerous, with knock-on effects on everything from rising crime to reactionary nationalism.
As a result of the pandemic, the number of people living in poverty has doubled to more than 500 million, according to a report issued earlier this year by Oxfam. Meanwhile, the collective wealth of the world’s billionaires rose $3.9 trillion between March and December 2020 to reach $11.95 trillion, the report said. Some of the biggest winners are those with high stakes in the technology sector. Digital retail vendors, conferencing platforms and social media groups have reaped the benefit from the lockdown and the shift to remote work.
Oxfam explained that COVID-19 has the potential to increase economic inequality in almost every country at once – the first time this has happened since records began over a century ago. Rising inequality means it could take at least 14 times longer for the number of people living in poverty to return to pre-pandemic levels than it took for the fortunes of the top 1,000, mostly white male, billionaires to bounce back.
The 1,000 richest people on the planet recouped their COVID-19 losses within just nine months but it could take more than a decade for the world’s poorest to recover from the economic impacts of the pandemic. The spectacular accumulation of wealth in the hands of a small minority is ramping-up pressure to tax the rich and their heirs.
We need more progressive systems of taxation- Melvyn Mangion
In most European countries, the economic repercussions of the COVID-19 pandemic impacted workers asymmetrically. The existing evidence points out that inequalities increased since the shock mainly affected workers with unstable and poorly protected jobs. Various studies have concluded that, in the absence of social insurance benefits, the crisis would have significantly increased labour income inequality.
This finding is grounded on three main observations. First, workers belonging to lower income households were more likely to be employed in sectors involved in the lockdown measures and, secondly, employed in occupations characterised, on average, by fewer possibilities of working from home. Third, younger individuals with temporary contracts who earn lower wages on average were hit hardest by the crisis as they experienced the largest employment losses.
COVID-19 may end up being the most significant development setback of our lifetimes. The increase in the gap of income inequality is not just that between individuals. The gap between the rich and the poor countries is also widening. The pandemic is reversing decades of progress in poverty reduction, the promotion of education, health improvements and overall well-being as the livelihoods of millions of people are being destroyed.
There are signs that the pandemic may have pushed at least an additional 100 million people into extreme poverty. What is more, acute hunger doubled in 2020 to 260 million people. Indeed, many more people will die of starvation and poverty-related causes than the direct health impacts of COVID-19.
There are dangerous signs that rising inequality could threaten the stability of political systems of nations and undermine their ability to address our shared challenges. The focus now quickly needs to turn to ensuring that we build more inclusive societies at home and abroad.
Among the urgent actions required to reverse inequality are the introduction of more progressive systems of taxation and redistribution and closure of tax havens that allow individuals and companies to avoid their responsibilities to societies.
Investments in health, education and infrastructure are particularly vital, as are investments in affordable housing and other measures to increase mobility.
Such investments should allow individuals to move to dynamic centres that offer jobs and higher incomes.
Melvyn Mangion, business consultant