Six Ways the Coronavirus Will Make Inequality Worse

In the years before coronavirus, inequality was looming larger in American policy discussions. Income and wealth inequality had been rising for decades. That was temporarily masked by the housing boom of the early 2000s, but the crash of 2008 put an end to such illusions. And with celebrity billionaires interacting ever more directly with average Americans on social media, these vast inequalities were becoming ever more glaringly apparent. Most measures show U.S. inequality at all-time highs. The commonly-used Gini Index is just one example:

Now the coronavirus pandemic threatens to make an already bad situation worse. Some have called the virus a great equalizer, because it can strike even the rich and powerful. But in terms of the long-term effect on economic outcomes, the disease is likely to be anything but an equalizer. Here are some of the ways that the pandemic will probably exacerbate inequality.

No. 1. Unemployment

Research by economists Davide Furceri, Prakash Loungani, Jonathan Ostry and Pietro Pizzuto has found that income inequality tends to rise for five years after a country suffers an epidemic. Unemployment -- now more than 14% in the U.S. and still rising quickly -- is obviously a big part of this. Low-wage workers tend to be the first to lose their jobs and the last to be hired back. The economists found, unsurprisingly, that workers with lower education suffer much more unemployment after a pandemic.

Unemployment also hurts lower-income people more because they’re less financially equipped to manage it. A high-earning worker who gets laid off usually has a cushion of savings they can rely on until new opportunities become available. If not, it’s generally not too hard for them to borrow. But for poorer workers who have less savings and can’t borrow at low interest rates, a spell of unemployment can mean eviction, the loss of their car or other long-term damage that prevents them from bouncing back.

No. 2. Less redistribution

Furceri and his co-authors found that unemployment and other market outcomes increase inequality, but can’t account for all of the increase. This implies that countries tend to cut back on redistribution after a pandemic. That might seem strange, given the great lengths that governments are now going to in order to throw a lifeline to the unemployed. But those policies, as well as policies to support businesses during and after the pandemic, come with a heavy fiscal cost. Because of the loss of tax revenue from the depression, the fiscal pressure for austerity persists after the immediate danger is over. Rightly or wrongly, many governments will probably try to tighten their belts, meaning fewer social services and transfer payments for the poor and middle class.