The coronavirus pandemic has pulled back the curtain on a number of deep-rooted economic and social conflicts, among them wage inequality.
Although Covid-19 threatens the health of billionaires and low-income workers alike, the latter are at a substantially higher risk of contracting the disease at work. Outside of symbolic actions — such as honouring our “essential workers” — low-income employees are largely not compensated for the elevated risk they experience.
In our series The New Social Contract, Financial Times journalists examined the frailties in our economic and social model, and potential solutions brought to the fore by the pandemic. But if the lessons of the 2008 financial crisis are any indication, low-wage, high-risk work isn’t going anywhere fast.
Compounding the issue of inequality, many of the same people that suffered the 2008 crash most acutely are now experiencing a second blow. Millennials were in the midst of graduating from university and establishing their professional footing during the Great Recession. Now, when they should be in their peak earning years, they are experiencing another setback.
How can we set low-income earners and under-40 workers on a better track post-pandemic? Is there a lesson to be learned over reducing income inequality?
Claire Bushey, Chicago correspondent, and Dave Lee, San Francisco correspondent, answered your questions — with a guest appearance by Gillian Tett — about how we can attempt to correct the course of post-pandemic inequality. Here are some highlights from the conversation, edited lightly for brevity and clarity.
FT commenter ThinkPositive: It seems obvious that Covid will have a massive impact on inequality within countries. What are the theories about how it will affect inequality between countries?
Claire Bushey: The prevailing theory seems to be that the pandemic exposes and exacerbates existing inequalities. When I and my fellow reporters were working on our story about low wages in the US and the UK, we were writing about a problem that had existed for decades. But the virus threw it into sharp relief because of the hypocritical juxtaposition of calling people “essential” while paying them as if they were anything but.
Covid-19 highlights which countries maintain a robust social safety net, and which do not. Put simply, on both the individual and national levels, the poor are getting poorer. The World Bank estimates the disease will push 40 to 60m people into extreme poverty this year, with sub-Saharan Africa and South Asia hit hardest. (Excellent story here on the impact in India.) But it’s happening in some wealthy countries too. Many factors fuelled the drive to reopen the US economy, but one of the biggest was there was no cushion for people the unemployed.
FT commenter TackleBox: A decade-long liquidity trap has choked off the already meagre hopes of home ownership for the millennial middle-class, stoked by property-friendly government policy. Who’s going to tell either millions of homeowners their homes need to be dramatically devalued or millions of young people they should just give up on owning? I’m a young person and admittedly a cynic, but it seems the first step to fixing any of this mess is a reckoning with the fact that the system is in a very, very bad way as it is.
Dave Lee: You’re absolutely right about the conflicts in play — which is why governments have been arguably in a state of paralysis on solving this issue. One economist I spoke to for the “recessionals” piece said it may be time to relinquish home ownership as a key part of the American dream. Or, at least, reorder our expectations — for years buying a house was a starting point to building wealth, perhaps now it should be a climactic point of a person’s financial life. That economist — Ana Kent from the St Louis Federal Reserve — suggested we look more closely at the ways in which non-homeowners are “punished” through tax policies that favour family home ownership. Giving renters a greater ability to save, and more incentive to do so, could help them prepare for home ownership earlier than they may be able to achieve today. There are also other indirect ways to make home ownership more affordable, particularly in the States. Several people I spoke to for my part of the series said, without a moment’s hesitation, that the only think stopping them from saving for a house was their high student loan debt.
And, since the series was prompted by coronavirus, there’s an argument that the expected shift to remote work could be a huge opportunity for millennial home-ownership. Where I’m writing this, in San Francisco, millennials are packed into apartments, many paying more than 30 per cent of their income on rent alone. The case to no longer live like this has surely never been stronger. Alternatively, there is what Fannie Mae economists last year described as “the coming exodus of older homeowners”. In other words, baby boomers downsize their homes, move to elderly care and then die — freeing up more housing stock in the process. Morbid, I admit.
FT commenter SU: Do you think that overall QE has been beneficial, given the impact on inequality and its social consequences? And how would you suggest governments best deal with inequality?
Gillian Tett: I personally have deep misgivings about the impact of QE. It was helpful in 2008 in averting a depression but I think subsequent rounds of QE were not so useful and carried big costs. Similarly, I understand why the Fed acted after Covid as it did — but fear that the costs of this are not getting enough attention. Nobody knows how we will exit this. And if governments want to tackle the inequality consequence of QE — namely that it inflates the value of assets which are distributed unevenly — they will need to do something few politicians are suggesting: raise capital gains tax.
FT commenter SE: How do you suggest we eliminate inequality? What policies would you implement if you could do so?
Claire Bushey: I think about inequality in two ways: rights and resources. The first is about entitlements as a human being. Majorities interfere with these rights all the time because of race, sex and other characteristics, creating inequality. The second type of inequality stems from how a society divides goods. The two forms are connected, obviously, but one is intrinsic and one is limited, because resources are finite. So here’s three ideas, two related to distributing resources and one to intrinsic rights.
1. Crack down on multinational tax avoidance. Part of the reason the “old” social contract is collapsing is because of lack of resources. Lack of money. So let’s get some more money. How do we do that? Taxes. Who has lots of money yet pays little tax thanks to fancy accounting and offshore jurisdictions? The Savoy Hotel, that’s who, and plenty of other companies, as detailed in a terrific story by our colleagues Tabby Kinder and Emma Agyemang. Why should Amazon pay an effective US federal tax rate of zero?
2. Raise unionisation rates. Unionionsation rates have fallen in the US and, until recently, in the UK, for decades. Unions are hardly perfect (just look at the United Auto Workers right now) but they redistribute power in the workplace. Redistribute power, and you’ll redistribute the money.
3. Improve access to contraception and safe, legal abortions. Nothing torpedoes women’s ability to better their economic circumstances than an inability to control their fertility. If you want to reduce inequality for nearly 3.8bn people, reproductive rights offer unparalleled bang for your buck.