exaggerated hopes and fears? – Michael Dauderstädt
The pandemic has barely increased income inequality around the world, but it has worsened other inequalities.
The pandemic, lockdowns and stimulus packages that governments have adopted to combat it and the associated economic crisis have affected different people, industries and countries to varying degrees, in terms of income distribution and production.
Let’s start from the bottom: Many people have lost market income because their business or that of their employer suffered from foreclosure or collapsing demand. But, thanks to public spending programs, disposable income has not changed much, at least in rich countries but also in several poorer countries, such as Brazil. Therefore, in 2020, the few data and studies already available show that inequalities within countries have not increased in many states.
In developing countries, however, the poor often work in the informal economy where they do not benefit from compensatory policies, such as job retention programs. The increase in poverty under these circumstances could become statistically visible within a year or two.
Some industries, including travel (air), accommodation, tourism, and non-food retailing, have been more affected than others by lockdowns or consumer fears (communications and technology companies in the world). information exploded). This sectoral bias has led to differential national recessions. Economies that were heavily dependent on tourism experienced deeper crises – in Europe, the Mediterranean countries suffered the most. But inequalities across the EU have hardly changed, as the poorest Member States in the East have performed relatively well.
Globally, the economies with the largest decline in gross domestic product between 2019 and 2020 were Macao (-56.9%) and the Maldives (-33.2%) against a global average of -3.5%, according to World Bank data. Rich countries capable of providing massive fiscal and monetary stimuli had an advantage vis à vis poor and already heavily indebted nations.
How do these developments translate into changes in the global distribution of income? In February, Angus Deaton published a provocative analysis claiming, contrary to popular belief, that global inequalities had declined during the pandemic. The GDP of high-income countries declined more than that of poorer countries, mainly because death rates in 2020 were higher in richer countries. But if we weight countries by population, the effect disappears.
In 2021, many poorer countries, particularly India, experienced new waves of Covid-19 infection, with a high number of deaths. The International Monetary Fund’s forecast for the year still shows higher growth for emerging and developing economies than for advanced economies (6.8% vs. 5.1%), likely due to China’s meteoric performance . Their share in world GDP (purchasing power parities) rose from 56.5% in 2018 to 57.8% in 2021, while the share of advanced countries rose from 43.5% to 42.2%. But soon, emerging economies may face more obstacles to catch-up growth, such as higher interest rates, lower demand for commodities from China, lower growth in world trade. and new waves of coronavirus.
The calculation of the international distribution of income is delicate. In his Worlds apart: measuring international and global inequalities (2015), Branko Milanovic differentiated three metrics: by country, regardless of size; by country, weighted by population but always excluding domestic inequalities; and per person, regardless of nationality, thus considering inequalities within and between countries. The third represents the more precise approach but requires huge data, unavailable globally in recent years.
To approximate an adequate estimate of the inequality defined by the second concept, the world quintile ratio (S80 / S20) compares the income of the richest fifth of the world population with that of the poorest 20 percent. This ratio is around five in Germany and also on average in the EU Member States. For the EU as a whole, it is around eight, although six at purchasing power parity (excluding the change in the cost of a given basket of goods).
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To calculate the global value, GDP and population figures from the World Bank’s World Development Indicators database allow countries covering 98% of the world’s population to be ordered by per inhabitant Income. Including as many of the poorest and richest countries as needed to get one-fifth of the world’s population (around 1.5 billion) in each case, in 2020 the income of the poorest quintile stood at around $ 1, $ 7 trillion (out of a total global GDP of about $ 80.8 trillion), while the richest fifth raked in $ 55 trillion. This results in an extremely high S80 / S20 ratio of 32.4.
Figure 1 shows the respective values for the last five years. Global inequalities (measured this way) declined through 2019, but the pandemic reversed that trend, albeit in a minor way (not even returning to 2018 levels).
Figure 1: Global income inequalities (quintile ratio) 2016-20
It remains to be seen how the more severe impact of the pandemic in 2021 on the poorest, barely vaccinated countries will change that picture. Neither Deaton’s optimism nor the exaggerated fears of many well-meaning observers, however, appear to be supported by the available data. Even the most famous inequality critics, Thomas Piketty and his colleagues, estimate that global inequality declined between 1980 and 2020.
The indicator calculated here, however, represents global inequality according to Milanovic’s second concept. “Real” inequality (concept three) is certainly higher because with concept two, the income of the rich in poor countries increases their overall income. per inhabitant Income.
An estimate made by Cem Keltek and myself ten years ago gave a value of 50 for the world quintile ratio, taking into account inequalities within and between countries. On the Gini coefficient, which ranges from 0 for total equality to 1 for total inequality, Milanovic estimated the values for 2013 to be around 0.5 for his first and second concepts and 0.7 for his third. Both estimates indicate that the true inequality – which is difficult to assess and, due to the poor availability of data, is only possible years later – is about 50% higher than the inequality of concept two.
When we calculate poverty in the same way – considering entire countries while neglecting their internal income distribution – the results confirm the trend in Figure 1. If we use the World Bank definitions of poverty (1.90 $ or $ 3.20 per day), we see a decline in incidence until 2019. Poverty reduction has been slow for the poorest (less than $ 1.90) but significant for the group. below $ 3.20 (from over 14% of the world’s population in 2016 to 8.26% in 2019). The same is true if we take 60 percent of the world’s median income (about $ 4,300 in 2020) as the poverty line (that’s $ 2,580 or about $ 7 per day). The lower proportion fell from 43.7% in 2016 to 40.7% in 2019.
Of the three measures, poverty increased in 2020, but by less than a percentage point. But it still implies that the pandemic crisis has added tens of millions of people to the world’s poor.
The focus here has been on income inequality and poverty. It is highly likely that the pandemic has exacerbated other dimensions of inequality and well-being, such as wealth and health inequalities or gender and ethnic divides.
Wealth will have become more concentrated, due to asset price inflation triggered by the extremely accommodating monetary policies adopted by the most important central banks. Despite the dramatic recession of the second quarter of 2020, stock markets recovered quickly and reached new highs in 2021, while house prices rose dramatically.
As Oxfam reports, the wealth of the world’s ten richest billionaires increased by $ 540 billion between March and December 2020. In the medium and long term, these developments are likely to increase income inequality, through income. that wealthy asset owners get rents.
The pandemic has also undermined progress on gender equality. During confinements, traditional models reaffirmed themselves. Women were more likely than men to take care of children and housework when nurseries and schools were closed. They were also less likely to continue working from home, as a larger share of their jobs (in the care economy, education and health) involved more direct contact with people.
Last but not least, the pandemic has affected people’s health differently. The poor were more likely to be infected and die from Covid-19, due to existing health problems, worse living conditions and work that could not be done at home, even in countries with high income. Poor countries have weaker health systems and higher mortality, which often will not be attributed to the pandemic by authorities, although high excess mortality rates clearly indicate this. And the world’s population has been vaccinated to an extremely uneven degree, with very low vaccination rates in most poor countries.
Given these weaknesses and the limited social protection systems in the world’s poorest countries, it is likely that the pandemic will increase inequality and intra-country poverty in low- and middle-income countries.