Picture Henk Kruger/African News Agency (ANA).

How Covid-19 will increase inequality in developing economies

CAPE TOWN- The Covid-19 pandemic is set to wipe out much of the inequality improvements that emerging markets have developing countries have made over the past decade according to an analysis by the International Monetary Fund (IMF). 

In the latest World Economic Outlook researchers say biggest effect on inequality includes a person’s ability to work from home and the drop in gross domestic product (GDP) expected for most countries in the world.

The novel coronavirus outbreak is also expected to have disproportionate effects on vulnerable workers and women.

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A study examining the differential impact on economic activity and jobs found that the ability to work from home is lower among low-income workers than for high-income earners. Sectors with activities more likely to be performed from home saw a smaller reduction in employment.

Lower-income workers were less likely to be able to work from home and more likely to lose their jobs as a result of the pandemic.

Comparing the IMF’s GDP growth projections for 2020 as a proxy, researchers have estimated that the effect from Covid-19 on income distribution is much larger than that of past pandemics. This loss across income brackets lies directly in proportion to their ability to work from home.

Any previous gains for emerging market economies and low-income developing countries that were achieved since the global financial crisis in 2008 could be reversed.

The pandemic could also reduce welfare by 8% in emerging markets and developing countries. This means that countries can dampen the effect on inequality and on welfare more generally by policy actions.

Investment in retraining and reskilling programs can boost reemployment prospects for adaptable workers whose job duties may see long-term changes as a result of the pandemic. Meanwhile, expanding access to the internet and promoting financial inclusion will be important for an increasingly digital world of work.

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CORONAVIRUS MONITOR