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Rudina Suti

Degree:

EMBA

Location:

United Kingdom

Industry:

Marketing

Year:

Sep 2019 – May 2022

By Rudina Suti

The pandemic inequalities and its impact to the lower-income population

After experiencing my first lockdown back in spring and with a second one just introduced widely around many parts of the world; my attention has been drawn to two articles I read a few weeks ago. The first one, reported by Bloomberg and Harvard Professor Raj Chetty and the second, an article about the economic rethink brought about by the Covid-19 pandemic crisis, published by The Economist.

Chetty, through his organisation known as Opportunity Insights which has drawn huge financial support from tech entrepreneurs among others, has employed data analysis on an unprecedented scale to analyse specifically the impact of Covid-19 pandemic on individual US zip-codes and communities; and has modelled the career trajectories of all living Americans, drawing on the widest of data sources from Census records to credit card transactions.

He finds, for instance, that the poorest segment of US workers (<$27k pa) has seen 11 million jobs lost in the crisis, whereas those earning >$60kpa have seen only marginal job losses. He finds that wealthy segments have suffered less disruption by working from home and saving more, whereas low-earners, having increased their spending with temporary government support, are now heading downhill to the point of looming civil unrest and evident racial tension. He proclaims that the American dream of meritocracy, equal opportunity and increasing prosperity is at an end absent radical measures. The problems are the same in the UK, only without the same degree of societal and racial tensions.

His prescription, as widely relayed to leading Democrats, is to get the virus under control at all costs, to target assistance where it is most needed and not indiscriminately; to empower lower paid workers and above all to improve educational opportunities for the disadvantaged young. All of the previously mentioned, by applying analysis of expected income levels for children from different educational backgrounds.

The Economist article (July 2020), traces macroeconomic theory and practice from Keynesianism through Monetarism in the 80’s to cover the 2008-9 crisis and on to Covid-19 pandemic. Citing heightened inequality in the US as well as Europe and the paradox that the wealthy and higher paid are bound to suffer less than the poor with the same rationale as Chetty, it goes on to call for a new economic model arising from one or more of fiscal stimulus such as reduced taxes; unbridled government borrowing at rates so low as to raise no concerns about eventual repayment; a move to negative interest rates along with its collateral damage to savings and bank profitability; or a resurgence of worker bargaining power arising from labour shortages.

The suggested rebalancing has to be achieved while meeting the increased health and pension obligations inherent to aging populations particularly in the US, Europe and Japan.

When looking at the impact of Covid-19 on all societies with some notable exceptions in East Asia and parts of Africa, we notice that the COVID-19 pandemic has affected many economic sectors but specifically has greatly damaged lower-income populations. Poor and less experienced young people have gone through more challenges than other segments of the population insofar as they sit at the bottom of the socio-economic ladder.

In addition, the pandemic led to the closure of numerous small businesses, especially for instance hair salons, gyms, restaurants and other enterprises that entail interaction of people. The majority of those in the lower-paid population work in such businesses and are accordingly prone to suffer the highest job losses. In most cases, these people live a hand-to-mouth existence; they neither have savings nor investments nor own property.

Closure of workplaces has led to high poverty levels among the poor and the less experienced youths. It is challenging for them to afford their daily basic needs such as food, clothing and rents. Moreover, it is difficult to get enough money for buying personal protective equipment during this COVID-19 period.

Another factor caused by the lack of jobs and high poverty levels among the lower earning population is increased crime rates. Governments should develop a programme to ensure the youths and the poor people are assisted during this COVID-19 pandemic. For instance, there should be free access to personal protection equipment countrywide to mitigate the risk of spreading COVID-19. Further, strategic measures should be developed for people to continue working in the most affected businesses.

Most recent news as regards the success of President-elect Biden and the hope of an early functional vaccine of course qualify the gloomy tone of the two articles mentioned above and can justify some optimism about a post-Covid future in a timeframe of six months. However, still the damage inflicted on the younger and poorer population has no quick solution, as many businesses are irretrievably impaired.

In the US in particular, societies are riven with political and racial tensions and the debt burdens taken on by governments cannot be lightly dismissed.

Distilling these into my own perspective and analysis from everything seen and experienced so far, I believe that the following required measures should be taken:

  • Governments should support lower paid or disadvantaged workers and their employers even at the risk of breaching borrowing norms and jeopardising risk-ratings.
  • Deferral of any significant tax increases to gather more revenues, other than those aimed at correcting clear anomalies.
  • A coordinated worldwide effort to find effective vaccines as distinct from selfish national initiatives, which of course is easier said than done in a situation where all countries, as witnessed already in the US, China and Russia will tend to put their own nationals in a priority position.
  • An optimistic long view whereby Covid-19 pandemic will be a thing of the past within three – five years and the world will not change fundamentally.

Following moral principles and looking in particular at the education and future employment opportunities of young people, we should concentrate support where most needed. Using topical phrases, we should look at “levelling up” while the resultant of “levelling down” would be as destructive to economic recovery as it would be to the just and fair societies which have evolved in most of the world over the past 100 years.

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