By Masja Zandbergen, Head of Sustainability Integration & Max Schieler, Senior SI Country Analyst, SI Research
The Covid-19 pandemic has reversed gains in global poverty reduction and has had a profound impact on multiple facets of inequality. Observations from the labor market suggest that lower-skilled employees, youth and women have been hit much harder than the highly educated. This asymmetric impact on employment, earnings and wealth leads us to expect a further rise in inequality during this pandemic, thus adding to the socioeconomic and political concerns that prevailed even before 2020. At Robeco we are well aware that the uneven distribution of resources has serious consequences for societies and economies. That is why we have always treated income inequality as a key component of our Country Sustainability Ranking and of our engagement program.
The pandemic has exposed and aggravated existing inequalities in various segments of society, as well as across sectors and regions. While official data on income inequality is published with a lag, observations from the labor market suggest that the impact of Covid-19 has been highly unequal across different groups of workers. Lower-skilled employees, youth and women have been hit much harder than the highly educated. This asymmetric impact on employment and earnings leads one to expect that inequality is set to rise further.
This development had already been evident for quite some time before Covid-19 in most advanced and larger emerging market economies. Indeed, in the majority of OECD countries, the gap between rich and poor is now at its highest level in 30 years. The richest 10% of the population earns 8.6 times more than the poorest 10%, compared with a ratio of 7:1 in the 1980s. The adverse impact of the pandemic will also reverse – at least temporarily – a positive trend observed in many emerging market and low-income developing countries over the past three decades, where within-country income inequality had been steadily declining, albeit from high levels.
Wealth disparities are even more extreme
Some data indicate that the repercussions of Covid-19 have led to a widespread rise in wealth inequality in 2020 both within and between countries. What’s more, inequality in wealth is even more extreme than in income. According to Credit Suisse’s Global Wealth Report 2021, the wealth share of the top 10% increased by 0.9 percentage points in the past year and the share of the top 1% by 1.1 percentage points. With one single exception – the share of the top 1% in 2014 – last year’s rise in inequality was considerably greater than in any year in this century. The number of ultra-high-net-worth-individuals increased by 24%, while the number of dollar millionaires expanded by 5.2 million to 56.1 million, equivalent to roughly 1% of the world’s adults. The same report estimates that the top 10% of adults owned 82% of global wealth, with the top 1% alone owning almost half (45%).
A further widening of the wealth gap in 2020 could also be observed on a regional basis. Europe and North America accounted for the bulk of the wealth gains last year, whereas India and Latin America were among the losers.
Rising inequality has serious implications for society and the economy
The impact of inequality on growth, politics and society has become the subject of increasingly heated debate in recent years. Sure, inequality is an inherent part of a market-based economic system, resulting from differences in effort, individual preferences, luck, opportunities or talent. And an increase in inequality can be a catalyst for growth by fostering incentives to invest in one’s own human capital, to promote savings and investments, and to take risks. On the other hand, there is a growing consensus that excessive inequality, left unmitigated, poses the threat of disruption to the economy, to our social fabric and to political stability.
‘There is a growing consensus that excessive inequality, left unmitigated, poses the threat of disruption to the economy, to our social fabric and to political stability’