Did inequalities increase during the pandemic? Wait for more data to get answers
It is widely believed that the Covid-19 pandemic and the reactions of governments and businesses to it have accelerated an already strong trend of increasing economic inequality in the United States. exception to the political polarization of our time.
This belief is also based on real evidence. Thanks to sharp increases in the prices of stocks and other assets after the initial shock of the pandemic, the country’s billionaires have actually added several billion to their net worth, while many affluent owners and 401 (k) holders have added more. hundreds of thousands. The risks of Covid-19 infection and job loss have been higher for those who cannot work from home, and those who can work from home tend to have more degrees and earn more money than those who cannot. The poorest children had much more difficulty with distance education than the richest. Etc.
So yes, it is possible, perhaps even probable, that when the dust settles and all the relevant data becomes available, we will conclude that economic inequalities have worsened during the pandemic. But I wouldn’t be sure. Pandemics are one of the “four horsemen” of economic equalization described by historian Walter Scheidel in his acclaimed 2017 book, “The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century ”(the other three being war, revolution and state collapse). Scheidel had more devastating diseases in mind than what Covid-19 turned out to be so far, but in January, Nobel Prize-winning economist Angus Deaton found that economic inequalities between countries had diminished during the pandemic, although it was not. hold on a population-weighted basis because the economy of India, the largest country in the bottom half of the world’s income distribution (that’s “lower middle income,” according to the World Bank ), had suffered a lot even before this year’s rise of the Delta variant.
In the United States, the very real forces pushing for more inequality have been thwarted by an unprecedented influx of state aid, while the upward trends in wages in the lower end of the distribution that were apparent before the pandemic seem to be accelerating now. The figures available so far, while preliminary and in some cases somewhat contradictory, do not quite tell the story of an explosion in inequality.
Perhaps the simplest of these numbers, taken from the pay-as-you-go financial accounts that the Federal Reserve began publishing quarterly in 2019, is the wealth share of the bottom 50% of the wealth distribution. It hit a low in the second quarter of 2011 at just 0.4% of U.S. household wealth and has grown in most quarters since, reaching 2% in the first quarter of this year for the first time since just before the Great Recession. started in December 2007.
This measure, which I have already mentioned, has its limits. The Fed estimates wealth by combining household-level data on assets and liabilities from its triennial survey of consumer finances, last conducted in 2019, with aggregate figures from its quarterly U.S. financial accounts , and includes all of the bottom half of wealth. distribution together because it does not have enough information to do otherwise. He’s able to slice things more finely in the top half, where the richest 1% have gained share of the wealth since the end of 2019, while those between them and the 50th percentile have lost ground.
So yes, it appears that wealth inequality increased during the pandemic in the top half, and most of the bottom half’s gains came from those just above in the wealth distribution rather than the wealthiest. The bottom half enjoyed a larger percentage gain in wealth than the top 1% – 30.3% versus 20.7% since the end of 2019 – although, because they had so little wealth to begin with. , that was only $ 609 billion in new wealth. against $ 7.1 trillion for the 1 percent. Yet the total wealth of the poorest 50% in the first quarter of this year was 6.3% of that of the richest 1%, up from 5.8% at the end of 2019 and the highest percentage. since 2007. In this sense, at least, the inequality between the top and the bottom has decreased.
This feeling may not be enough for most people who worry about inequalities, but improving conditions for the less well off deserves to be celebrated in any case, and it is not only the Federal Reserve which detects the signs. Researchers at the Urban Institute estimated last month that, thanks to significant job gains and benefits included in the US bailout approved in March and earlier pandemic aid legislation, the share of Americans below the poverty line would fall to 7.7% this year. of what they estimated using the same methodology at 13.9% in 2018. These estimates use what’s called the Supplementary Poverty Measure, a ten-year-old measure that attempts to better integrate all available resources. for poor families, and the Urban Institute’s number for 2018 is slightly higher than the 12.8% PMS rate estimated by the Census Bureau and the 12.7% estimated by the Center on Poverty and Social Policy from Columbia University based on census data. Measuring poverty is complicated, especially over time. But the trend seems to be going in the right direction.
Because the expected decline in poverty in 2021 owes a lot to federal aid, some of it may prove to be temporary. But the gains for the lower end of the income distribution also come from the private sector in the form of higher wages.
It’s hard to know what to make of the 2020 data, which can be skewed by low response rates to government surveys and significant job losses among low-wage workers. But the strong wage growth before the pandemic and so far this year appears to be real, and all anecdotal evidence from the job market indicates that it is continuing. In previous economic expansions, wage gains at the bottom of the ladder only came after years of job growth; this time around, that seems to be the norm from the start.
A full picture of the impact of the pandemic on income and wealth inequalities will have to wait for more data. The most recent income distribution figures available are from 2019 for Census Bureau survey data and 2018 for Internal Revenue Service tax statistics. The Census Bureau’s estimate of the Gini coefficient, a measure of the equal distribution of income that goes to one if one person receives all the money and zero if everyone earns the same amount, has increased at a rate of one. bit slower in the 2000s than in the 1980s and 1990s. It even declined slightly in 2018 and 2019, though it seems too early to make much of it.
In recent years, such broad measures of inequality have taken a step back from top income and wealth statistics compiled from tax data by economists Thomas Piketty, Emmanuel Saez, Gabriel Zucman and others. Saez and Zucman’s most recent updates to US data (and revisions in response to criticism from other economists) show a decade-long plateau in the income share going to the top 0.1% and a more recent halt in wealth share gains.
Considering what we know from other sources, it seems quite likely that the income and wealth shares of the top 0.1% increased in 2020, and given that I don’t have a precise explanation on why inequality declined – or at least somewhat suspended – before the pandemic, I’m not going to make confident predictions here on what it will do after.
One thing that is clear from the graph above is that inequality can go down, and go down drastically. In the midst of the great equalization of the mid-twentieth century, economist Simon Kuznets (another Nobel Laureate) wrote an influential article in 1955, speculating that it might be in the nature of economic modernization and the industrialization that inequalities first increase and then decrease. After decades of growing inequalities in the United States and other rich countries, such reviews are now more likely to conclude that a growing gap between the rich and the poor is an inevitable feature of capitalist economies (the “Capital in the 21st century ”by Piketty) or society in general in the absence of calamity (book by Scheidel). They might be right! But again, I wouldn’t be sure.