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Analysis: Mitigating inequality during COVID-19
The extent of the damage the pandemic has had on social and economic life is beyond comprehension.
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Illustration of wealth (Shutterstock/beeboys)
T
he COVID-19 pandemic and the subsequent economic crisis has been branded “a crisis like no other”. The extent of the damage the pandemic has had on social and economic life is beyond comprehension. For months countries have entered limited or full lockdowns, in an attempt to contain the outbreak. These efforts have had large repercussions on their economies.
Debates on how and when the global economy will recover after the COVID-19 crisis continue to take place. The common estimations of recovery have varied from a "V-shaped" recovery, which means a fast recovery, a "U-shaped" recovery, which means a somewhat slower recovery up to the "Nike (logo) swoosh-shaped" recovery which means a slow but gradually improving economic recovery. More recently an increasingly popular view has surfaced, which says that the economic recovery will potentially take a "K-shaped" tangent. This is basically the case where there will be an uneven recovery across countries or across income or industry groups within a country. Some will recover fast and some will be impacted worse than others. The originator of this "K-shaped recovery" idea seeks to highlight the impending issue of the widening inequality brought about by the COVID-19 pandemic.
The COVID-19 crisis affects almost all aspects of the economy, yet it affects people differently. A disproportionate impact is already seen in the diverging experiences of individuals in coping and coexisting with COVID-19. For example, with social restrictions in place, white-collar workers are able and encouraged to work from home, and they are mostly able to seamlessly continue with their jobs supported by advanced communication technologies and effectively avoiding exposure to the virus.
Yet, not all people have the same privileges. Most blue-collar workers (i.e. construction workers, waiters, transportation workers etc) may not be able to do their work remotely from home as they need to have a physical presence to do their jobs. Not to mention the informal workers (i.e. domestic workers, street vendors, waste pickers etc.), who rely on daily income, which it may not be possible to earn as demand falls with the lockdown. These are the most vulnerable groups prone to a larger impact from the crisis.
The widening income gap will put the economy at risk of wider inequality. In the past five years Indonesia’s Gini ratio as a measure of income inequality has been trending down, which means there is a continuing narrowing of inequality. Statistics Indonesia data show that the Gini ratio has dropped from 0.414 in 2014 to the current level of 0.381. Yet, with the escalating scale of economic crisis due to the COVID-19 outbreak, the ratio could potentially increase.
Hence, efforts must be made to minimize the widening income gap by cushioning the crisis impact on these vulnerable groups. According to World Bank data, about 31 percent of the Indonesian population is categorized as poor and vulnerable. With this large economic impact, the number of people below the poverty line may increase quite substantially. Therefore, the first policy response should focus on how to relieve the pressure on these vulnerable groups.
At the onset of the outbreak, the government launched a total stimulus package of Rp 695.2 trillion (US$47.06 billion) with the largest allocation given to the social safety net (Rp 203.9 trillion), in the form of direct cash transfers, staple food supplies etc. Government support was also focused on maintaining the survivability of micro, small and medium enterprises (MSMEs), as small businesses are highly vulnerable to demand shock in the economy.
