Covid-19 to increase income inequality

One of the most pressing economic challenges in a post Covid-19 world could be rising income inequality, according to a report prepared by ICICI Securities as past experience shows pandemics increase inequality.

Global pandemics increase income inequality, lower the share of incomes going to the people at the bottom of the pyramid, and lower the employment rate for those with basic education but not for those with advanced degrees, ICICI Securities said citing recent research.

There have been five major pandemics in the last 17 years- SARS (2003), H1N1(2009), MERS (2012), Ebola (2014) and Zika (2016). The analysis shows that pandemics lead to a persistent and significant increase in inequality.

Pandemics affect people with basic education disproportionately while people with advanced education, on the other hand, tend to be relatively insulated from the economic impact of pandemics.

This is because, people with basic education tend to have jobs that require workers to be physically present at job sites.

As a result, conventional methods of dealing with pandemics i.e. social distancing and lockdowns leave the poor poorer while not having any significant negative impact on the affluent class.

While Covid-19 is expected to increase income inequality across the country, ICICI Securities study expects some factors to cushion the impact on the rural economy. These factors are (i) the agriculture sector is expected to perform well in FY21 despite the lockdown (ii) the government has allocated Rs 40,000 crore more under rural employment guarantee scheme MNREGA, taking total allocation in FY21 over Rs 1,00,000 crore.

“This should provide employment opportunities to returning migrant workers,”ICICI Securities said.