U.S. Economic Inequality Widens During the COVID-19 Pandemic

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Income inequality has been a serious growing problem for the U.S. The COVID-19 pandemic has made that problem get worse according to a series of new studies.

Rising economic inequality is threatening not only economic progress In the U.S. but also its democratic political system. The deadly combination of COVID-19 and the accompanying economic recession has led to a deep crisis for working people and the poor trying to survive this perfect storm. Legislative action by President Biden’s administration and Congress to provide aid to those struggling has helped but it hasn’t addressed the core issues of economic inequality in the country.

The spread of COVID-19 has incited a vast level of fear and anxiety throughout the US, inspiring a sense of powerlessness, economic insecurity, and corrosion of social support and now a backlash from a significant number politicians and the population opposed to necessary public health measures.

The pandemic has had an impact on an increase in violence in U.S. cities. While overall crime has declined in many cities, the U.S. saw more than 2,100 firearm deaths between March and late April 2020 — the highest tally in that period since 2016. Nonfatal shootings also remain steady or have seen similar increases in places like Philadelphia, Chicago and Detroit. In these cities, areas where COVID-19 is spreading rapidly, black Americans were already 10 times more likely to die from gun homicide than white Americans before the pandemic.

The predominant social group impacted by COVID-19 are African-Americans. New data from the CDC indicates that African-Americans are at increased risk of hospitalization and death from COVID-19, largely due to pre-existing disparities in health, structural racism, and deeper inequities in health access and economic opportunity. These same structural inequities drive overlapping challenges of community violence. As COVID-19 hurls the country into an economic recession, the barriers to health, housing, and employment will disproportionately impact those who already had limited access to those resources before the pandemic.

New data from the Centers for Disease Control and Prevention indicates that African-Americans are at increased risk of hospitalization and death from COVID-19, largely due to pre-existing disparities in health, structural racism, and deeper inequities in health access and economic opportunity. These same structural inequities drive overlapping challenges of community violence. As COVID-19 hurls the country into an economic recession, the barriers to health, housing, and employment will disproportionately impact those who already had limited access to those resources before the pandemic.

There are at least four ways the COVID-19 pandemic is increasing inequality:

  • First, higher-paid workers are working from home while lower-paid blue-collar workers typically do not have this option.
  • Second, a higher share of low-paid workers is in essential services such as nursing, policing, teaching, cleaning, refuse removal, and store attendants where they are more likely to meet people who are infected.
  • Third, lower paid workers are more represented in the sectors that have suspended activities such as hotels, restaurants and tourism services.
  • Fourth, the pandemic is increasing poverty and inequality between richer countries that can afford to bail out their firms and provide social safety nets, and poorer countries that do not have the capacity to do so.

A survey of 37 countries indicates that 3 in 4 households suffered declining income since the start of the pandemic, with 82% of poorer households affected.. In the U.S., over 2 million more households and 25% of African American households claim that they do not have enough food since the pandemic.

A new study by Indiana University found women, children, the uneducated, and people of color are being hit hardest by the COVID-19 pandemic. The study, published in the Proceedings of the National Academy of Sciences journal, found African-American adults were three times more likely to report food insecurity, being laid off or being unemployed during the pandemic, compared to white people.

“It is clear that the pandemic has had an extraordinary impact on the economic security of individuals who were already vulnerable and among disadvantaged groups,” said

Bernice Pescosolido, a distinguished professor of sociology at Indiana University and co-author of the study. “This work demonstrates the need for strategically deployed relief efforts and longer-term policy reforms to challenge the perennial and unequal impact of disasters.”

“Providing basic resources to all Americans, such as generous unemployment benefits, paid family leave, affordable federal housing and universal preschool will help communities better weather crisis,” said Brea Perry, coauthor of the study. “We need to rethink how we intervene in disasters and also strengthen our social safety net for everyone.”

Even before COVID-19 hit the U.S. , working-class communities of color and the most oppressed faced deep levels of poverty, income inequality, budget cuts to social and public spending, and a ratcheting up of racism, xenophobia, and anti-immigrant racism from the forces of hate.

A heightened level of fear and anxiety has spread through the U.S. along with COVID-19. The result has been a sense of powerlessness, economic insecurity, and corrosion of social support.

The COVID-19 pandemic can’t be compared to the Black Death, which killed a third of Europe’s population in the Middle Ages or the 1918 (“Spanish”) flu, which killed around a third of the world’s population. And unlike the Great Depression during which the stock market and assets of wealthy people plummeted, during COVID-19 stock markets and the assets of the wealthy have increased substantially soared in value, widening the gap between rich and poor.

According to some experts, we should not assume this pandemic will inevitably lead to reductions in inequality despite the government’s temporary financial rescue methods. Far from it leading to better conditions, inequality in many countries peaked in the early 1920s. By the 1930s, with the onset of the Great Depression, there was widespread unemployment and destitution in the US, UK and Europe. It was WWI that was the biggest catalyst for the phenomenal growth in the U.S. economy that occurred in the 1950’s.

In the United States, the increase in the income share of the top one percent is at its highest level since the Great Depression.

The pandemic is a boon for the ultra-rich. In the US, over 44 million people lost their jobs and unemployment surged towards 15% between April and June 2020. This did not affect the fortunes of the super wealthy. During the same period the top five billionaires rose by $102 billion, thereby increasing their wealth by 26%. In this period of time, the combined wealth of U.S. billionaires increased by over $637 billion to a total of $3.6 trillion. To put it into comparative terms, that is more than the entire wealth of the 54 African countries.

As ordinary people around the world suffer from the health and the pandemic, billionaires have seen their fortunes expand. The Institute for Policy Studies’ analysis of Forbes data shows the combined wealth of billionaires increased by $1.763 trillion (59.8 percent) between August 2020 to August 2021 from approximately $2.947 trillion to $4.765 trillion. Of more than 700 U.S. billionaires, the richest five (Jeff Bezos, Bill Gate Larry Page, and Elon Musk) saw a 107 percent increase in their income this during this period.

The pandemic crisis has fueled the country’s skyrocketing inequality. Among the 100 largest low-wage employers in the country, average CEO pay jumped $13.9 million while their workers’ median pay flatlined, according to a Studiesanalysis. More than half of these 100 low-wage companies rigged their own rules to inflate CEO pay — protecting top executives’ huge bonuses while their workers suffered during the pandemic.

The increasing concentration of in-country inequality is described in the book by Ian Goldin and Robert Muggah, Terra Incognita: 100 Maps to Survive the Next 100 Years. The authors report that between 1980 and 2020, billionaires in the US saw their wealth soar by 1,130%, increasing more than 200 faster than median wages. At the same time, the tax obligations of billionaires in the US declined by 78% between 1980 and 2020.

According to Lily Batchelder, writing for The Hamilton Project, some high-income U.S. countries have the highest level of wealth inequality, the second highest level of income inequality, after taxes and government transfers, and one of the lowest levels of intergenerational mobility. An individual’s future is largely determined by their parents’ income. In 2020 alone, children will inherit around $764 billion and pay an average of just 2.1% on this income. By contrast for working people, Batchelder shows, the average tax rate is 15.8%, seven times more. These disparities are further skewed by race, and the racial wealth gap is even larger than it was in 1968, at the peak of the struggle for civil rights.

Here’s some other data to show how serious the income disparity is in the U.S.:

  • The United States is the most economically stratified society in the western world. As The Wall Street Journalreported, a recent study found that the top .01% or 14,000 American families hold 22.2% of wealth, and the bottom 90%, or over 133 million families, just 4% of the nation’s wealth.
  • In 2015, the top 1 percent of families in the United States made more than 25 times what families in the bottom 99 percent did, according to a paper from the Economic Policy Institute. a non-profit, nonpartisan think tank in Washington, D.C.
  • The amount of money that was given out in bonuses on Wall Street last year is twice the amount workers earned in the country combined. Some hedge fund managers make $4 billion annually, enough to pay the salaries of every public-school teacher in New York City.
  • Since 1990, CEO compensation has increased by 300%. Larry Ellison, chief executive of Oracle Corp. received US$1.84-billion and Barry Diller, chief executive of Interactive/Expedia.com received US$1.14-billion, and the next six received at least US$500 million in total pay. The average pay of chief executives at major corporations in the United States was US$15.7million in 2018.Corporate profits have doubled. The average worker’s salary has increased 4%.
  • In a study of 34 developed countries, the United States had the second highest level of income inequality, ahead of only Chile.
Image: OECD
Image: World Economic Forum

The World Inequality Database, funded by the Paris School of Economics, the Ford Foundation and numerous other grant-making government research agencies and nonprofit foundations in Europe and the U.S. Its executive committee includes three of our leading experts on economic inequality, Emmanuel Saez and Gabriel Zucman of UC Berkeley and Thomas Piketty of the Paris School of Economics.

The WID data shows the history of inequality and future scenarios in relation to government actions. Its findings are that “economic inequality is widespread and to some extent inevitable.” The implications of this: “If rising inequality is not properly monitored and addressed,” the report says, “it can lead to various sorts of political, economic, and social catastrophes.”

Current trends point to even more inequality in the offing. At existing rates, the wealth share of the top 0.1% will match the share of the entire global wealth of the middle class by 2050.

The Pew Foundation study, reported in the New York Times, concluded, “The chance that children of the poor or middle class will climb up the income ladder, has not changed significantly over the last three decades.”

The Economist’s special report, Inequality in America, concluded, “The fruits of productivity gains have been skewed towards the highest earners and towards companies whose profits have reached record levels as a share of GDP.”

A joint effort by the Russell Sage Foundation, the Carnegie Corporation and the Lyle Spencer Foundation has released several reports based on research on the issue of income inequality. They have concluded that “over the past three decades, the U.S. has experienced a slow rise in economic inequality and as a result, the fruits of economic growth have gone largely to the wealthy; median incomes have stagnated; and the poor have increasingly been left behind.”

In their book, Winner-Take-All Politics: How Washington Made The Rich Richer-And Turned Its Back On The Middle Class,Jacob Hacker and Paul Pearson argue that since the late 1970’s, an intense campaign of antidemocracy policy changes have resulted in an intense concentration of wealth and income to the very few individuals and corporations in the U.S.

According to Richard Wolff, professor of Economics at the University of Massachusetts, U.S. corporations, particularly the large ones, “have avoided taxes as effectively as they have controlled government expenditures to benefit them.” Wolff points out that during the Depression and WWII, federal income tax receipts from individuals and corporations were fairly equal, but by 1980, individual income taxes were four times higher than corporate taxes. “Since WWII, corporations have shifted much of the federal tax burden for themselves to the public-and especially onto the middle class,” Wolff says.

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The most comprehensive recent study of corporate taxes by professors at Duke, MIT and the University of California concluded “we find a significant percent of firms that appear to be successfully avoiding large portions of the corporate income over a sustained period of time.” For example, The New York Times reported that GE’s total tax was 14.3% over the last 5 years, while in 2009 receiving a $140 billion bailout guarantee of its debt from the federal government.

Forest fires, floods and hurricane damages in recent years have made the effects of the current pandemic ever worst, according to some studies.

Communities across the U.S. should brace themselves for severe economic losses if climate change continues undeterred, according to a new analysis.

Every rise of 1 degree Celsius in temperature will cost the U.S. about 1.2 percent in gross domestic product, researchers said in a study published in the journal Science by Solomon Hsiang and a team of 12 other scientists. They also delivered a grim message: expect America’s income inequality to get worse as the planet warms.

The researchers provide data on how climate change will continue to impact the economy and society in a wide range of ways from agriculture yields and the labor supply to mortality rates and violent crime. They identified how different communities’ energy expenditures will change, and mapped out the locations likely to take the greatest hit from coastal damage.

According to the researchers, climate change will disproportionately affect areas that already suffer from poverty, exacerbating America’s economic inequality. By the late 21st century, the poorest third of U.S. counties are expected to experience losses between 2 and 20 percent of county income, according to the study.

These communities in the U.S. where climate change will have the biggest negative impact are also the communities where the pandemic has hit the low-income and disadvantaged the hardest.

According to a study by Robert Joyce and Xiaowei Xu, published for the Institute for Fiscal Studies, women, the poor, the elderly, disabled and migrant populations, have borne the brunt of the fallout from COVID-19 in the U.S. For example, women accounted for 55% of all jobs lost, even though they make up under half of the total workforce. And when they could continue working, mothers were one-and-a-half times more likely to stop work than fathers. Their greater loss reflects the fact that women are more likely to work in the services such as the restaurant and hospitality industry which were closed. These trends are likely to set back progress in gender equality, the authors say.

In previous recessions, men have borne the brunt of job losses, due to the sensitivity of sectors such as construction and manufacturing to economic cycles. By contrast, the employment of women was more stable. This time is different. The COVID-19 pandemic has hit industries that are consumer-facing hardest, including small shops, restaurants, and airlines. And mothers working at home are 50% more likely to be interrupted than men.

As with previous crises, minorities are affected to a greater degree and recover more slowly. This same is happening as a result of the COVID-19 induced downturn. This is true both for workers and small businesses. According to the Financial Times, within a month of the pandemic hitting the U.S., 22% of small businesses went under. But the impact was not evenly felt . While 17% of white owned businesses failed, 41% of black owned businesses collapsed. The ethnic dimensions of inequality are clearly apparent in New York. Just 7% of the firms in the Bronx received grants, compared to over 12% in wealthier counties In the U.S., lower-income neighbourhoods are most at risk. For example, in New Orleans, people living on streets with a higher proportion of Black people were two to three times more likely to die from COVID-19 than streets with white people. These are also neighbourhoods previously devastated by Hurricane Katrina in 2005.

What’s the social impact of widening income inequality? Significant social problems, and declining indicators of well-being and happiness, recent research seems to suggest.

British epidemiologists Richard Wilkinson and Kate Pickett, authors of The Spirit Level: Why Greater Equality Makes Societies Stronger, show in their research, that almost every indicator of social health in wealthy societies is related to itslevel of economic equality. The authors show that the gap between the rich and the poor, is the worst in the U.S. among developed nations. “In more unequal societies, people are more out for themselves, their involvement in community life drops away, “Wilkinson says. If you live in a state or country where level of income is more equal, “you will be less likely to have mental illness and other social problems,” he argues.

A University of Leicester psychologist, Adrian White, has produced the first ever “world map of happiness,” based on over 100 studies of more than 80,000 people and by analyzing data from the CIA, UNESCO, The New Economics Foundation, the World Health Organization and European databases. The well-being index that was produced was based on the prediction variables of health, wealth and education. According to this study, Denmark was ranked first, Switzerland second, Canada 10th and the U.S. was ranked 23rd.

Linda McQuaig and Neil Brooks, authors of The Trouble with Billionaires, argue that increasing poverty due to economic inequality in the U.S. and Canada has detrimental effects on health and social conditions and undermines democracy. They cite the fact that while the U.S. has the most billionaires in the world; it ranks poorly in the Western world in terms of infant mortality, life expectancy, crime levels-particularly violent crime-and electoral participation.

Between 1983 and 1999, men’s life expectancy decreased in more than 50 U.S. counties, according to a study by Majid Ezzati, associate professor of international health at the Harvard School of Public Health. For women, the news was even worse: life expectancy decreased in more than 900 counties. The United States doesn’t even make the top 40 of countries in terms of life expectancy. In this and many other ways, the richest nation on earth is not the healthiest.

Ezzati’s results are one example. There is also evidence that living in a society with wide disparities-in health, in wealth, in education-is worse for all the society’s members, even the well off. Life-expectancy statistics hint at this. People at the top of the U.S. income spectrum “live a very long time,” says Lisa Berkman, Director of Harvard University’s Center Population and Development Studies, “but people at the top in some other countries live a lot longer.”

A meta-analysis published by the British Medical Journal shows a link between income inequality and mortality and health. The researchers showed in their report that people living in regions with high-income inequality had an increased risk of premature death, independent of their individual socioeconomic status, age or gender. The study concluded that income inequality is “detrimental to the more affluent members of society, since these citizens experience psychosocial stress from the inequality and loss of social cohesion.”

Recent neuroscience research reveals that the brain rejects inequality. E. Tricomi and colleagues advanced this argument, published in the journal, Nature. They contend the human brain dislikes inequality when it comes to money. And other behavioral and anthropological evidence shows that humans dislike social inequality and unfair distribution of outcomes. Researchers at the California Institute of Technology and Trinity College in Ireland have identified reward centers in the brain that are sensitive to inequality.

In their report, Building A Better America–One Wealth Quintile At A Time, Dan Ariely of Duke University and Michael I. Norton of Harvard Business School, showed that across ideological, economic and gender groups, Americans thought the richest 20% of American society controlled about 59% of the country’s wealth, while the real number is actually 84%. At the same time, the survey respondents believed that the top 20% should own only 32% of the wealth. In contrast, in Sweden, a country with significantly greater economic equality, 20% of the richest people there control only 36% of the wealth of the country. In the American survey, 92% of the respondents said they’d rather live in a country with Sweden’s wealth distribution.

They concluded that most Americans they surveyed “dramatically underestimated the current level of inequality,” and “respondents constructed ideal wealth distributions that were far more equitable even than their immensely low estimates of the actual distribution.” They contend that all demographic groups including conservatives like Republicans and the wealthy “desired more equal distribution of wealth than the status quo.”

Frederick Soft, writing in the American Journal of Political Science provides an analysis of economic inequality and democratic political engagement, concluding “higher levels of income inequality powerfully depress political interest, the frequency of political discussion and participation in elections among all but the most affluent citizens, providing compelling evidence that greater economic inequality yields greater political inequality.”

So, while income inequality is a growing serious problem for the economic and social health of the U.S. population, it’s fair to say it’s also a threat to its democratic system.

Among America’s most cherished core values is the belief that the United States is a “land of opportunity” and that we uniquely offer to citizens the potential for rising from “rags to riches” if citizens have the necessary ability and work hard. This is a myth. Income and wealth disparity in the United States (as measured by the Gini index of equality/inequality, and in other ways) is much higher in the United States than in any other large First World democracy. So is hereditary socioeconomic immobility, that is, the probability that a son’s relative income will just mirror his father’s relative income, and that sons of poor fathers will not become wealthy. Part of the reason for those depressing facts is inequality of educational opportunities. Children of rich Americans tend to receive much better educations than children of poor Americans.

The higher the level of inequality in a society, the more unhappy residents are. Inequality may be the answer to the famous Easterlin Paradox, which asks why economic growth does not always translate to the increased happiness of residents. Several surveys over the last decade show that Americans are not as happy as their counterparts in other Western countries.

Three psychologists — Shigehiro Oishi, Selin Kesebir and Ed Diener studied this question, and published their results in the journal Psychological Science. Their data came from the General Social Survey, a National Science Foundation study. The researchers examined over 50,000 surveys from 1972 to 2008, They found that Americans were happier when they believed there was income equality. In addition, they found that Americans have become less trusting and don’t believe they live in a fair society, which corresponds to the increase in income inequality during that period.

The COVID-19 pandemic has brought into clear focus the problem of income inequality in the U.S. and that the pandemic has worsened the problem. Clearly, the U.S. is increasingly becoming a country with severe income inequality, with the top 1% amassing most of the wealth in its economy, while the poor and middle class are suffering from a declining standard of living. The impact of this inequality goes far beyond traditional financial measurements and can be seen in deteriorating health and well-being of more and more Americans. The cumulative trend will also clearly pose threat to democratic institutions and norms.

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Leadership Coach and Author: Helping Leaders Live Better Lives and Serve Others