The economic impact of COVID-19 will be felt for many years. The disparity of the impact of the pandemic on different segments of the population are already apparent. The Federal government’s response will be crucial in mitigating the effects of the pandemic and helping those impacted the most recover.
Clearly, the health impact on minority communities has been substantially greater than on white communities. Rates of both infection and death are higher for such populations. This is partially due to the disproportionate occurrence of certain morbidities among minority populations (high blood pressure, obesity, asthma), less access to quality health-care, and the general effects of poverty on diet and environmental surroundings.
However, what also needs to be addressed is the disproportionate economic impact of the pandemic on different population groups. This includes not only minority groups, but also young people, the less educated, and blue-collar workers; individuals who generally have lower income/lower wealth.
Higher income/wealthier households are much better equipped to weather the economic impact of the pandemic than lower income/middle income/lower wealth households. This is not just due to the obvious fact that they have greater resources to rely on, but also due to the nature of their jobs, which are largely white-collar, professional. It is much easier for these workers to transition to a work-from-home model. Administrators and managers in business, health-care, education, banking/finance/insurance, and technology can relatively easily make the switch. Also, employees in areas such as technology, education, engineering, architecture, sales-support, and financial services can readily make the change.
Of course, not all white-collar professionals will be shielded. The most obvious exception is individuals in health-care such as doctors and dentists. Certainly some of their tasks, can be transitioned to an on-line model, such as virtual office visits, but much of their work requires direct contact with patients. So even though their incomes may be protected, they still put their health at greater risk when doing their work.
Individuals with less education generally are found in more blue-collar occupations that require the physical presence of the worker to perform the job. This includes production facilities such as factories, meat-packing facilities, and mining/drilling. It also encompasses service sector occupations such as health-care, personal services (hair cutting/styling, nail salons), food services (cooks, servers), repair services (automobile, plumbers), construction, law enforcement, and distribution services (logistics). These jobs cannot be performed from home; they require the physical presence of the worker to be performed.
Young people are at greater economic risk for a number of reasons. First, new graduates will have a tough time finding a job in the current environment. Employers will have great hesitancy in hiring given the uncertainty created by the pandemic. Second, young people will disproportionately suffer from unemployment even if they did have a job before the start of the COVID-19; they will frequently be the first to be laid off. Also, many are employed in occupations like food services and retail sales which are the very sectors that have been among the most affected by the pandemic. The long-term economic impact of being unemployed early in one’s life can cause a significant drop in life-time earnings.
Unfortunately, a particularly insidious impact of the pandemic on economic inequality is largely going unrecognized. While higher income/wealthier households are better able to maintain their income by being more able to transition to a work-at-home model, at the same time they are spending less money; further building their wealth and increasing inequality. The discretionary spending of higher income/wealthier households has plummeted as a result of COVID-19 and the shelter-at-home orders. Vacation spending such as airline travel, hotel/motel stays, and resort spending has dropped precipitously. Their spending on entertainment activities such as sporting events, concerts, and theater has been eliminated. Spending on personal services such as restaurant meals, haircuts/styling, and nail salons has dropped.
A disproportionate of spending on vacations, air travel, entertainment, and personal services is done by higher income/wealthier households. While the negative income effect on lower income/middle income individuals who work in these areas is well recognized, the fact that the money remains in the accounts of higher income/wealthier households, increasing their wealth, is generally ignored. This effect further increases economic inequality.
What is particularly alarming is that these effects will not be mitigated over time. If a family eliminates spending on vacations, travel, entertainment, restaurant meals, or personal services today, that does not mean that spending will inevitably occur at some point in the future. The money not spent on eating out today will not necessarily be spent on eating out in the future. Vacation plans canceled now will not automatically be rescheduled for the future. Households will only eat out, vacation, and go to entertainment events a certain amount. Not doing so now does not translate in doing more of it in the future. The decreased spending of higher income/wealthier households as a result of the pandemic means that the wealth of higher income/wealthier households will increase, while the incomes of lower income/middle income/less wealthy households who depend on that spending will decrease.
The result is that the economic impact of the pandemic on inequality will mean greater inequality going forward. Economic inequality is being exacerbated by COVID-19 in a manner that will not be eliminated over time.
This is why it is absolutely imperative that the Federal government intervene to reduce the inequality caused by the pandemic. It means that programs need to be provided that provide assistance to lower income/middle income households. The question is where should the funding come from to provide such assistance. As I have argued in Capitalism, Socialism, and the Promise of Democracy, the funding needs to come from increased taxes on higher income/wealthier households. While there are other options, this is clearly the one that makes the most sense. This will be the topic of future posts.
Do you believe income and wealth inequality will increase as a result of the pandemic? Please comment below.
Do you think that our current form of extreme capitalism can manage the pandemic, or are the current responses a recognition that this form is likely to fail because is has little or no answer to the pandemic.
It is a little hard to judge because the lack of leadership by President Trump has been so glaring, though it could be argued that an Oligarchic Capitalist system inevitably results in a leader like Donald Trump coming to power. If we put the issue of Trump’s leadership aside, the extreme inequality in the current system is a real barrier to effectively dealing with the pandemic. First, lower income/lower wealth communities are at greater risk due to the health problems that plague them and the limited access they have to health care. They are at greater risk if they become infected and our health-care system is less able to provide for them. Second, opening up the economy puts lower income/middle income/lower wealth individuals at greater risk. They are the ones that will be forced to return to work (to support themselves) and the types of jobs they have force them to be in greater direct contact with the public. Higher income/higher wealth individuals can more easily adapt the job they do to a work-at-home model, and they have the resources not to return to work if they believe the risk of doing so is too great. So higher income/higher wealth communities may be better able to insulate themselves from the pandemic, while it rages in lower income/middle income/lower wealth communities. Finally, an Oligarchic Capitalist system is more likely to prioritize economic concerns over health concerns. A more democratic system would result in greater income and wealth equality, meaning the population would be in better condition (both economically and health-wise) to weather a pandemic. Second, needed economic support would more likely be provided in a more democratic system so that individuals are not forced to return to work before the pandemic is under control. Finally, in a more democratic system it is more likely the health-care concerns would be prioritized over economic considerations.
How can it not?
Income inequality was so awful bad going into the new year, and now this?
Remember all the people the 40% (by some estimates) of people that couldn’t handle a $500 emergency without borrowing?
Just exacley what do you suppose is these very peoples situation is now?
I’m no economist, but seems to me that a high percentage of the job growth in the years before the pandemic was in the the service sector – the same sector that is getting obliterated now.
Answer this:
I read the other day that consumer borrowing has shrunk enormously. I expected quite the oppsite to occur. We’re 6 months into this. Are the masses getting by on the $600 supplemenatal unemployment? Their savings? Family and social services support?
Or perhaps – since so many disadvantaged people rent – on the temporary leniency of their landlords?
I predict a breaking point coming up shortly – right around election time.
God help us.
Yes, you are correct that much of the growth in recent years has been in the service sector, and that sector has been particularly hard hit because of the pandemic. At first glance it would seem that consumer borrowing should increase as a result of the pandemic. However, because the economy shrank by 4.8% in the first quarter, consumer spending fell by 7.6%. So as consumers spent less, they borrowed less. However, a sign that consumers are in trouble has been the increase in delinquencies (the amount consumers are falling behind in their payment of their debt). According to the St. Louis branch of the Federal Reserve, consumer credit lines past due has shot up to over 7%, while consumer credit card debt past due is now over 6%. You are right that households are getting increasingly stretched. When the temporary moratorium on rent payments are lifted, many people will be in trouble. A breaking point may well be on the horizon.