Coronavirus does discriminate
July 09, 2020

Coronavirus does discriminate

Elizabeth Gillam. Head of EU Government Relations and Public Policy

The coronavirus is not, as some would claim, a great leveller hitting everyone - rich and poor, men and women, black or white - equally. Instead, the coronavirus is shining a light on the levels of social inequality in our societies and setting the scene for the inevitable political backlash that can already be seen in the Black Lives Matter protests.

The crisis gives fresh urgency to calls to better understand the distributional impacts of the health and economic crisis that is unfolding and use the economic recovery as an opportunity to deliver economic prosperity for all.  

The health crisis

While we are still learning about how the virus spreads and why some are more impacted than others, it is clear that limiting social contact through social distancing and shielding at home are critical to limiting the spread of the disease. In addition, the presence of pre-existing medical conditions has been shown to increase the likelihood of someone dying from the disease.

On both counts, those from poorer backgrounds are much more likely to be at risk.1 The ability to work from home, for example, varies drastically according to income bracket. Less than 10% of workers in the bottom income quartile are able to work from home, while the percentage for the top quartile is over 60%. They are also more likely to live in more densely populated areas and cramped living conditions, which makes shielding and social distancing more difficult.

The relationship between income and health is well documented, meaning that those from poorer socioeconomic backgrounds are more likely to have pre-existing medical conditions putting them at greater risk of death from the disease.2

There is also a clear disparity when looking at the data through the prism of diversity. A study by Public Health England found that the BAME (Black and minority ethnic) population were between 10-50% more likely to die from coronavirus, primarily due to structural inequalities, which means that people from BAME backgrounds are overrepresented in lower income brackets.

The picture for gender is less clear cut.  While many governments do not disaggregate cases by gender, there is evidence that women have a slightly more elevated risk of contracting the disease, probably due to the fact that women are more likely to occupy frontline occupations and therefore more exposed.3 However, men are almost twice as likely to die from the disease, which may signal an underlying genetic difference in the way the disease impacts men and women.

The looming economic crisis

The health crisis has quickly become an economic crisis. Here again, socioeconomic disparities, including from the angle of diversity, means that the distributional impact will not be evenly felt.

While governments across Europe have so far been able to insulate many households from the economic fallout through wage subsidy schemes, the number of people claiming unemployment benefits jumped by 70% in the UK for the month of April, with unemployment forecast to reach up to 10% by the end of the year. In the US, where the social safety net is much lower, the increase in unemployment has hit those in lower paid occupations in sectors such as leisure and hospitality, retail and construction.

As governments start to pare back wage subsidy schemes in Europe, it seems likely that Europe will also see those in lower paid and precarious employment bear the brunt of the economic downturn. Women and ethnic minorities are over-represented in this group. Anecdotal evidence around skyrocketing use of foodbanks should be sounding alarm bells of what is to come.

Looking further out, the impact of the lockdown could have long-lasting economic consequences as school closures mean that children from deprived backgrounds are likely to fall further behind, limiting their future ability to compete in the workforce of tomorrow.

As with health inequality, the economic crisis is also more likely to have a disproportionate impact on those from lower socioeconomic backgrounds, women and ethnic minorities. These same groups are also the least likely to have a seat at the table when the policies to promote the economic recovery are designed.

A ticking political time bomb?

“It’s the economy, stupid” – Bill Clinton’s campaign slogan should make most politicians nervous as the gloomy economic forecasts pour in. However, the relationship between economic performance and populism is more subtle.

After the Global Financial Crisis, developed economies all witnessed an upswing in populism as voters saw their standards of living stagnate. But even when economies recovered, populism continued to rise. Studies into this phenomenon have all identified the same cause – rising levels of social inequality.

For example, a study has shown that in the Italian constitutional referendum in 2016, the share of votes against were predominantly in areas with high unemployment.4 Income inequality and employment prospects also were key determinants in the Brexit vote.5 Politicians and supporters of globalisation have long believed that a rising tide lifts all boats, but glaring social inequalities mean that some boats are less seaworthy than others.

If politicians want to avert a populist backlash, then the focus of the economic recovery must be on promoting policies that deliver an inclusive recovery. While current fiscal rescue measures are likely to cushion the economic shock for many, the monetary stimulus has had a regressive effect by inflating asset prices, thereby widening wealth inequality.

Economic recovery plans, therefore, should aim to ‘build back better’ in a way that addresses the structural social inequalities in our economies and societies. While there seems little risk of a return to the austerity measures of the past, at least for the foreseeable future, the lack of fiscal headroom in many countries to spur inclusive growth will be a major challenge.

With resources scarce, measuring distributional impacts in order to ensure targeted support to those most in need becomes all the more important. There is a growing movement for governments to move beyond GDP to gauge whether their policies are delivering economic wellbeing for all. The limitations of GDP as a benchmark to measure whether an economy delivers prosperity for people have been debated for some time.

More recently, Nobel prize winning economist Joseph Stiglitz and former US Federal Reserve Chairman Ben Bernanke have both called for economies to start measuring economic wellbeing rather than output.6 7

Even the IMF, the bastion of the Washington Consensus, published a paper in March setting out how countries could introduce a more people-focused approach to measuring economic performance.8 The post-COVID recovery presents the ideal opportunity to put the theory into practice.

Footnotes

Important information

  • Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

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