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COVID-19 magnifying economic inequality

July 09, 2020
By: Jason Rittenberg

COVID-19 is not just wreaking havoc across the national and global economies but is specifically causing that damage in a way that widens the existing fault lines between the “haves” and “have-nots.” Further, as countries and companies contemplate the possibility of managing operations alongside the new coronavirus, rather than an entirely “post-COVID” society, there is little reason to believe the worsening economic inequality will mend without specific intervention. The problem will not be easy to solve.

As SSTI covered last November, income inequality worsened in America — and in all 50 states — between 2006 and 2018, a period that includes the Great Recession. According to the World Bank, America rates worse on income equality than all countries with which our economy or power is often compared, including China, Germany, Japan, Russia and the United Kingdom.

New research from West Virginia University finds that economic downturns tend to contribute to worsening income equality within states. Specifically, states that cut their budgets in response to a recession tend to see their lowest fifth of wage earners receive a smaller share of income. The end result is that the top fifth of earners go from earning 5.0 times more than those in the lowest fifth, already a hefty premium, to earning 5.3 times more than those at the bottom. These impacts were likely to persist across the entire study, which covered 1987-2012. (The study found that states that responded to recessions with increased spending tended to improve their equality by decreasing the share of income held by the top fifth.)

Federal data indicates that the COVID recession will particularly hurt those at the bottom.

Last month, the U.S. Federal Reserve Board reported that employment among those in the bottom quarter of wage earners has declined by 35 percent. Those in the bottom-middle, top-middle and top income quartiles have seen their employment decline by about 15 percent, 10 percent and 5 percent, respectively.

The Fed report also found that younger, less-educated and minority workers have all been more likely to find themselves unemployed since the pandemic began. Workers aged 25-54 have seen almost twice as much job loss as workers 55 or older. Similarly, workers with no college experience have seen about twice as much job loss as workers with a bachelor’s degree. Hispanic workers have seen the highest rates of job loss among any race or ethnicity reported by the Fed, at 12 percent versus 8 percent for white workers.

Pending further changes to rent, mortgage and utility assistance, as well as policies regarding evictions, this employment and income problem is poised to morph into an unprecedented housing crisis. In Boston alone, housing courts are expecting 20,000 evictions to be filed when the state’s eviction freeze ends on Aug. 18. All too predictably, researchers have found that 70 percent of these filings are in parts of the city with majority minority residents. Across America, 300,000 evictions are filed in a typical month, a number likely to be surpassed as state moratoriums end (a BBC report found 136,000 filings ready across just North Carolina, Michigan, New York City and Atlanta).

Geography also seems likely to play a role in worsening economic inequality.

According to the most recent weekly household tracking survey conducted by the U.S. Census Bureau, the percentage of households reporting a loss in employment income has a range of 25 percent: Nebraska, lowest in the week nine survey, had 36 percent of households report lost income, while Nevada, the state with the highest rate, had 61 percent of households make the same report.

These different state experiences, at least as measured by the Census in June, are tapping into pre-existing inequalities. Of the top 10 states reporting share of households with lost income, six are also in the top 10 for income inequality (and Nevada had the third-fastest rate of rising inequality):

  • California – 54 percent of households, average Gini index of 0.480
  • New York – 54 percent, 0.506
  • Louisiana – 54 percent, 0.485
  • Texas – 54 percent, 0.477
  • Georgia – 52 percent, 0.475
  • Mississippi – 52 percent, 0.477

Geographic differences are likely to matter across national borders as well. A report by the United Nations Development Programme anticipates that their global human development metric, which combines education, health and living standards, will decline in 2020 for the first time since the metric was created in 1990. This predicted decline in development is driven by expected increases in extreme poverty, which the World Bank has suggested could reach 40 to 60 million this year, and decreases in the rate of school-age children attending school — a metric that already ranges from an average of just 14 percent for “low human development countries” to 80 percent among those at the top.

The technology sector seems poised to bear a substantial portion of resentment about unequal economic conditions.

An article published earlier this week by the San Francisco Gate lays out what is, at least, a severe problem of optics for the industry. San Francisco and San Mateo counties saw year-over-year declines in leisure and hospitality employment of 55 percent and in professional and business services employment of 2 percent. Within this context, the article points out the role the region’s tech sector has played in driving up housing costs and juxtaposes tech companies’ extra benefits and social events against the experience of an airport worker who has had his hours cut and seen his second job as a Lyft driver wither away to $35 per week.

The challenge for policymakers and the public will be to find a way forward that can improve the long-term economic situation and opportunities for as many workers as possible — seeing more people employed by companies that can respond to a health crisis with additional leave and remote work.

Unfortunately, addressing historic economic inequality will not be easy. The problem is expressed in educational offerings, career paths, housing access, commuting options and health outcomes, as well as employment income. Myriad governments, corporations, nonprofits and individuals will need to come together to make progress.

Fortunately, perhaps, the COVID-19 pandemic’s disruption to the normal operation of society has not only shined a spotlight on economic inequality, but also provided an opportunity to implement more effective economic policies and commercial practices going forward.

coronavirus, inclusion