The pandemic-induced economic inequality gap is widening
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Every year at about this time, leaders in business and politics gather in the snow-capped mountains of Davos, Switzerland, for the World Economic Forum.
This year, attendees may have swapped snow boots for fuzzy slippers when the WEF went fully digital because of the coronavirus pandemic, but discussions around the global economy will still be front and center.
Chinese President Xi Jinping delivered the keynote address on Monday, calling for more global cooperation to repair the world’s economy.
“We must build an open world economy, firmly safeguard the multilateral trade system and refrain from making discriminatory and exclusive standards rules and systems, as well as high walls that separate trade, investment and technology,” he said.
Later this week, online discussion will focus on the economic, environmental and technological challenges facing the world now. But one thing is already clear: The crisis has worsened inequality. The Oxfam charity, in a new report, found it could take more than a decade for the world’s poorest populations to recover from the effects of the virus. And, half a billion more people could be living in poverty on less than $5.50 a day in 2030, compared to the start of the pandemic.
That, while the world’s ten richest men have seen their combined wealth increase by half a trillion dollars since the start of the pandemic.
“At a time when so many people around the world are feeling insecure about their jobs, their lives and the livelihoods, the richest in our society seem to be making windfall profits from this pandemic, and this is a tragedy that needs to be addressed urgently by governments around the world,” Danny Sriskandarajah, chief executive of Oxfam GB, told the BBC.
The big question is what’s caused this growth in inequality and can it be reversed?
On the global edition of the “Marketplace Morning Report,” Simeon Djankov, a researcher at the Peterson Institute for International Economics, told the BBC’s Victoria Craig there are several contributing factors.
Below is an edited version of their conversation.
Djankov: One, it is affecting some sectors much more than others, in particular the services sectors and sectors where you need social interaction. That happened to be more of the sectors where women work. So, as a result, the gender gap in these sectors has increased tremendously in some countries. And the second reason is around the world where a number of people who work in part-time or temporary jobs — and that can be seasonal work, like in tourism or transport — and the first group that got severely hurt by the pandemic is precisely these part-time workers.
Craig: You know, there’s been lots of data showing the rich have gotten richer, the poor poorer. How do you think rescue efforts from both central banks and governments have contributed to these inequalities that you just signed out?
Djankov:Well, the majority of governments, especially in the advanced economies, at the beginning of the crisis, pumped up a lot of money into the economy, that liquidity quickly went into stock markets and real estate, which benefit mostly rich people who already have money on stock markets.
In contrast, it is the poor members of society that typically have temporary jobs, part-time jobs. So for both of these reasons, inequality has increased greatly, just in a matter of a few months.
Craig: Why do you think it’s so hard to make these kinds of policies have an equal effect across the population? Why haven’t we seen that?
Djankov: Well, because this is a crisis, unlike, let’s say, the previous several crises. And. in fact, this is the first crisis, at least in the United States, over 100 years, research shows, that the gender gap is increasing. The previous crisis from a decade ago, mostly affected manufacturing sectors where men typically work. This crisis is different. I think governments were not prepared for that. And early response through central banks tended to actually benefit the richer members of society.
Craig: I think some may sort of be scratching their heads because it seemed the whole purpose of some of these rescue efforts was to keep people in jobs paychecks flowing. Do you think there’s just a better way to sort of focus these policies to make it more equal?
Djankov: So some countries have succeeded. The picture is not grim everywhere. The countries that have succeeded — some of the Scandinavian countries, East European countries succeeded — they very quickly reoriented their policies towards the sectors that are most hurt. So, in other words, rather than having policies for the whole economy, equal policies, they focused on the most affected sectors. The development of inequality is rising very rapidly in the United States, it started very rapidly rising in United Kingdom. But in the last two or three months, it started to shrink again, fortunately, while in most of the European countries, it actually never rose.
Craig: So when we look at sort of what the economy of the future looks like, how do you think policymakers should focus on building a more inclusive economy right now and not waiting until the pandemic is over to deal with some of these problems?
Djankov: In the first six to nine months of recovery problems, we were focusing on, “Let’s keep as many jobs as possible in the existing sectors in the existing firms.” Now it’s time to start asking a different question, which is, what is the post COVID economy going to look like? Which sectors are likely to be down for significant periods of time? And therefore, let’s start retraining, let’s start reorganizing our schemes towards this new economy.
In the United Kingdom, there is already an initial attempt in doing that with the Coronavirus Future Fund, which is asking the question, let’s support some of the businesses of the future if you like. That’s a more difficult task, but still possible, because, otherwise, even when the coronavirus eases out, people are going to find themselves in sectors where the demand is lacking for years to come. We need to shift now.
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