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Surprising ways the pandemic changed global inequality

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Between 2000 and 2019, median incomes in the poorest nations rose faster than in the richest, and the number of people living in extreme poverty fell from more than one in four to less than one in 10.

Then COVID-19 came to put that progress at risk. At first, it seemed obvious that the economic cost—lost jobs, erosion of wealth, even loss of life—would fall disproportionately on the poor and leave them worse off. The wealthy, though unable to protect themselves from disease and mortality, would be safeguarded by an abundance of resources.

However, depending on where you are, COVID has also set off trends and reactions that defy this foregone conclusion. Inequality did not increase everywhere.

Some governments cushioned the blow for their citizens. Workers everywhere rushed in, many risking their lives, to continue bringing food for their families and providing shelter and care.

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Data on inequality can be patchy and slow in coming at best. Economists are still arguing about what exactly happened in 2020 and 2021, without considering how new crises like war and inflation might affect wealth and income disparities in the future.

Even so, it is important to draw some early conclusions. To recover from the economic damage of the pandemic, we must understand who continues to struggle. Central bankers need to know where to direct aid and how broader economic policies — in taxes, trade, infrastructure spending and efforts to fight inflation — might affect people’s economic well-being.

Overall, one thing seems clear: Almost everyone lost money at the beginning of 2020, and the richest nations, and the richest people, recovered much faster.

In rich countries, governments could afford to shield their populations from economic fallout if they wanted to. In many poor countries, large aid packages were simply not an affordable option.

These dollars made the difference. Spain, for example, allocated an additional 8.4% of GDP to pandemic support. According to a study from last year, inequality in the country, without government intervention, would have increased by almost 30% in a single month of the pandemic.

The United States invested trillions of dollars in its economy, more than any other country, and aid reached a wide section of society. That included generous bailouts for businesses, as well as stimulus checks, enhanced unemployment benefits and tax credits for the middle class and the poor. After incomes plummeted in early 2020, the extra dollars helped households across the income spectrum get back on their feet.

China also managed to rein in inequality broadly, though for another reason: After the virus was first discovered in Wuhan, the government implemented a swift, harsh, and largely effective set of COVID containment policies. Without the interruptions of the big outbreaks, the recovery was quick.

But measuring the true picture of inequality in the world’s second largest economy is not easy. By one popular measure, the gap has not changed in recent years.

The top 20% of households still earn 10 times what the bottom 20% earn. The urban-rural divide is also deep, with city dwellers earning 2.5 times more than their rural counterparts.

The swift reopening of the economy helped narrow the gap between rural and urban incomes, a cornerstone of President Xi Jinping’s long campaign to alleviate rural poverty.

Meanwhile, the combined fortunes of China’s richest people have fallen more than $700 billion from their peak early last year, according to the Bloomberg Billionaires Index. The gulf between China’s super-rich and everyone else is narrowing, for now.

Globally, the recovery was especially swift for people at the top of the economic spectrum. Despite some early losses, the world’s 500 richest people earned $1.7 trillion in 2020 and another $810 billion in 2021, according to the Bloomberg Billionaires Index. Those who made their fortunes from tech companies, particularly those that thrived during prolonged periods of lockdowns and social distancing, led the gains.

In the countries hardest hit by the economic fallout, there is good news: Remittances (money sent home by migrant workers abroad) fell less than economists feared in 2020 and then rose in 2021.

Job cuts and reduced working hours, common early in the pandemic, prompted many overseas workers to return to their home countries. Nearly 4 million Indian citizens and some 400,000 Filipinos returned from overseas jobs in 2020. With fewer workers abroad, there was less money to send home, but overall global remittances were down just 2.3% in the first year. of the pandemic, according to the Asian Development Bank.

The money flowed again the following year. Workers who stayed abroad benefited from government fiscal stimulus measures. The ADB estimated that global remittances grew $34 billion in 2021, more than offsetting the loss from the previous year. Migrant workers have traditionally been key to post-crisis recovery in both their host and home countries, and the ADB estimates that remittances in 2022 will increase by another $31 billion.

The pandemic was also particularly hard on women and girls, who were more likely than their male counterparts to drop out of school or the workforce to take on caregiving roles. A dark corollary: a United Nations report confirmed that COVID triggered a “shadow pandemic” of violence against women.

On the employment front, women were hit hardest and lagged behind in the recovery. Men lost 57 million jobs in 2020, more than the 46 million lost by women, but in percentage terms, the damage was more extensive for women, 3.6% compared to 2.9% of men, according to the International Labor Organization.

And when employment recovered, jobs came back more slowly for women. In 2021, women still held approximately 19 million fewer jobs than in 2019. The shortfall for men was 10.2 million.

The data shows that women-owned businesses were more likely to temporarily close and stay closed longer than those run by men. They also suffered a greater decline in demand, were more likely to lay off workers, and suffered financial hardship.

Source: Gestion

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