Inequality in economic impact of COVID-19 and its consequences

Published: Posted on

By Professor Aditya Goenka
The Department of Economics, University of Birmingham

The COVID-19 pandemic has highlighted the inequalities that exist in society. While the demographic data on infections and mortality has not been matched fully with income data, a picture of the unequal impact of the pandemic on society is emerging.

Recent evidence shows that the lower income sections of the population in the UK have seen a reduction of savings through increase in consumption, while the richer have seen an increase in savings. This effect is exacerbated for those with children. The primary mechanisms are increased food and energy costs, and increased costs of educating children at home (increased broadband and computer purchases). For the richer sections of population these are insignificant and decrease in opportunities to spend have increased savings.

This matches the very detailed data that exists for the USA where, without a furlough scheme, the lower income workers also sustained more job losses. The heterogeneity of impact on income groups matches the experience in countries ranging from Canada to  India. Studies from other countries give insights on implications for the UK.

The effects on income and employment were somewhat muted in the UK due to the furlough scheme, but the impact was larger for lower income and minority groups. There has been a shift to working from home. However, the ability to work from home also depends on household characteristics, occupation, and the lower income groups have lower ability to work from home as they have relatively more frontline jobs that cannot be performed from home. This has consequences on the evolution of economic inequality.

There are three main consequences of the asymmetric economic impacts of COVID-19. First, there is an immediate increase in poverty as the lockdowns continue. An increased number of individuals are being pushed to destitution due to the greater economic impact on lower income groups. This has both moral and welfare dimensions. This has manifested in the campaign to provide school meals during lockdown and holidays, and the controversy surrounding universal credit and the benefit cap.

Second, inequality is likely to increase over time both through the change in savings and through decrease in educational attainment of the less well-off children. All the evidence from other similar diseases shows that higher incidence of the disease leads to lower schooling. There is no reason to think that the effects of COVID will be different.

Third, there is a public health dimension to the economic inequality. The increased economic pressure means that lower income sections of society are less able to stay at home to comply with lockdowns and isolate. This will not only lead to higher infections and mortality, as we have already seen this in the UK where the effect of the pandemic is most severe in the more deprived regions of the country. In England, for the period April to July 2020 the areas with least deprivation had half the mortality of the most deprived regions. Without income support to isolate, the incentive and ability to do so is reduced, leading to higher transmissions. This has an externality on others as the individual actions affects the transmission of the disease in the population. One way to address this would be to give income support to those isolating – both those infected and those required to do so by the track-and-trace system. A more targeted approach will be cost-effective and achieve economic and public health objective.

The UK is struggling to contain the COVID-19 epidemic with the growth of the B117 strain. The current lockdown is expected to last perhaps till Easter 2021. The frictions from trade due to Brexit will increase food prices, decrease choice, and likely to lead to job losses, especially for small business. The combination of the two economic shocks will increase the burden on lower income households and there is greater urgency to come up with innovative policies to prevent the increase in poverty and inequality.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

Leave a Reply

Your email address will not be published. Required fields are marked *