The COVID-19 pandemic has shown all of us an economic picture we never imagined to see. However, this picture was not the same for people across occupations, income groups, ethnicities or even countries. Recently, Joyce Chang, the director of Global Research at JP Morgan, termed the pandemic, not just a health crisis but also a wealth crisis.
The pandemic’s impact was felt immediately through shortage of medical infrastructure, dipping demand and staggered supply, and the weakening of various sectors, among others. But a hidden, perhaps unassessed, aspect is the widening wealth gap. The causes and specific details vary across economic groups, cultures, and industries. However, the underlying theme remained constant: the rich became richer, and the poor poorer.
Widespread income loss
To examine a few instances, we see that the most affected people belonged to the lower or mid-earning strata of the society, where work-from-home was not an option, leaving them stuck at home, with no income. The worst-hit industries (hotels, restaurants and tourism services) also primarily employed informal labour, which meant that many blue-collar workers were left jobless.
According to a study by the Centre for Monitoring Indian Economy (CMIE), the first five months of the pandemic saw a loss of 2.1 crore salaried jobs. The most considerable job losses were among white-collar professionals such as software engineers, teachers, and professional contractual employees, followed directly by industrial workers. CMIE noted a 26% fall in the numbers of industrial workers over the last year.
To put it another way, the pandemic most affected those least capable of withstanding a financial shock.
No rock bottom for the rich
Although a shock for most, the pandemic didn’t stop the very few from treating this as a pleasant surprise. People belonging to the upper-class saw potentially no impact on their savings: instead, the downturn allowed them with opportunities to buy things at lower rates, thus further amplifying their wealth. The research found that the fortunes of the top five billionaires rose by $102 billion during the pandemic, increasing their wealth by 26%. The combined wealth of US billionaires increased by over $637 billion to a total of $3.6 trillion, which is considerably more than the entire wealth of the 54 countries in the African continent. While the masses had to dip into their savings, the wealthy took this all-time low situation to invest in real estate and luxury, bringing home the benefits of rock bottom.
This state of affairs simply reminds us that while we might all be in the same sea, we’re certainly not sailing in the same boat.
Apart from the disparity in existing income levels, the differential impact across industries has also played a significant role in widening this wealth gap. Sectors that came to a total standstill included hospitality, aviation, travel, etc., and hence, the players there faced severe financial crunches. Savings of these institutional sectors eroded, with a constant outflow due to fixed costs and no inflow. On the other hand, technology-enmeshed industries–including digital retailers, e-commerce platforms and conferencing platforms–saw tremendous growth simply due to a lack of other choices. This mass shift helped most companies in these sectors to perform at their all-time best levels.
Zoom out even further, and a perspective across countries shows similar trends. The pandemic is augmenting the gap between richer countries that can afford to bail out on their firms and provide social safety nets, and poorer countries that cannot do so. Besides, after digital technologies began transforming markets, the capabilities and benefits of technology were anything but equally shared. Technologically sound and agile nations found themselves better prepared to tackle this downfall. The digital divide remains wide between groups within economies and is wider still between economies at different stages of development.
A solution to bridging this gap is not easy, neither ideologically, nor practically. However, at a broader level, taking cognizance of such faults in the system is an essential lesson that policymakers need to take away from this pandemic. Acknowledging that any crisis sets the tone for a shift towards substantial policy reforms can, perhaps, be one step forward.