How the Coronavirus Might Reduce Income Inequality (percentage, interest, financial)
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Past pandemics have shifted the balance of bargaining power toward workers and away from owners, economic historians agree.
The Black Death, among other pandemics, had a significant impact on how income is shared between those who own land and other assets and those who provide the labor.
The most direct and brutal way in which that impact is felt is a change in the supply of labor. Viruses and bacteria kill workers, who become less plentiful as a result. For those who survive, wages rise. At the same time, land and other assets are unscathed, and the returns to their owners decline. The result is a more equal distribution of incomes.
The mid-14th century Black Death is the most widely studied of past pandemics. It certainly resulted in higher wages for workers in northwestern Europe. That's the first order effect.
But there probably was a second order effect. Higher wages may have inspired a search for ways to boost productivity and save on labor costs, eventually giving rise to the Great Divergence, a period when incomes in the West surged ahead of those in the rest of the world. Examples included substituting horses for oxen as a source of agricultural power and moving from cultivating grains to raising sheep for wool.
The Black Death wasn’t the only pandemic to have had a long-lasting economic impact. In a paper published this month by the National Bureau of Economic Research, three economists examined 15 outbreaks that each accounted for more than 100,000 deaths, the most fatal being the Spanish flu, which took an estimated 100 million lives between 1918 and 1920.
They found that real wages typically rose for three decades after an outbreak, by as much as 5% at their peak. Over that same period, the natural rate of interest—a measure of the return on capital—declined by one-and-a-half percentage points.
Overall, pandemics narrowed the income gap between employees and owners of capital.
Yet, some economists say "This Time Is Different." This pandemic doesn't hit prime-age and younger workers very hard. It hits retirees and the elderly disproportionately. That means there won't be a significant contraction of the number of working-age employees.
Past pandemics have shifted the balance of bargaining power toward workers and away from owners, economic historians agree.
The Black Death, among other pandemics, had a significant impact on how income is shared between those who own land and other assets and those who provide the labor.
The most direct and brutal way in which that impact is felt is a change in the supply of labor. Viruses and bacteria kill workers, who become less plentiful as a result. For those who survive, wages rise. At the same time, land and other assets are unscathed, and the returns to their owners decline. The result is a more equal distribution of incomes.
The mid-14th century Black Death is the most widely studied of past pandemics. It certainly resulted in higher wages for workers in northwestern Europe. That's the first order effect.
But there probably was a second order effect. Higher wages may have inspired a search for ways to boost productivity and save on labor costs, eventually giving rise to the Great Divergence, a period when incomes in the West surged ahead of those in the rest of the world. Examples included substituting horses for oxen as a source of agricultural power and moving from cultivating grains to raising sheep for wool.
The Black Death wasn’t the only pandemic to have had a long-lasting economic impact. In a paper published this month by the National Bureau of Economic Research, three economists examined 15 outbreaks that each accounted for more than 100,000 deaths, the most fatal being the Spanish flu, which took an estimated 100 million lives between 1918 and 1920.
They found that real wages typically rose for three decades after an outbreak, by as much as 5% at their peak. Over that same period, the natural rate of interest—a measure of the return on capital—declined by one-and-a-half percentage points.
Overall, pandemics narrowed the income gap between employees and owners of capital.
Yet, some economists say "This Time Is Different." This pandemic doesn't hit prime-age and younger workers very hard. It hits retirees and the elderly disproportionately. That means there won't be a significant contraction of the number of working-age employees.
I think a major difference that gets overlooked is the type of work being done by the workforce matters a lot in the discussion of income inequality. While there is still a lot of inequality between the employees and employers, there's even more forming between the blue-collar and the white-collar.
People in tech and finance and other professional white-collar jobs already were somewhat well-suited to telework, be it from home, a hotel, or a beach. They don't have a dependence on being somewhere physically to do most of their job the way blue-collar workers do. These same white-collar jobs were already heavily responsible for the gentrification of places like SF and NYC, and while tens of millions fight to get an unemployment check, these same tech and finance workers are carrying on from home with much less impact. The extensive quarantining is creating an increase in demand for doing things via web (cloud) applications, meaning when the dust finally does settle, the people working in tech fields will be even further ahead financially than those who don't.
All this is a long way of saying I see the landscape in 3 years being the 20% in fields like tech being even more highly paid and flush with equity while the remaining 80% is still trying to put the pieces back together from extended unemployment on top of any exodus and/or obsolescence caused by the extended quarantines and shutdowns. People will rail against the "job creators", but the reality I see is that the reason they're being priced out of cities and left with limited prospects is because the group of people making $250k/year to smash keys on a keyboard or study data in a database all day are pricing those making $60k/year out while simultaneously creating services and/or applications that render those same people increasingly obsolete.
The 'black plague' is estimated to have killed 30-50% of the population of Europe. Today, no more than 0.046% (that's 46/1000 %) of any country's population has died.
Given the fairly low fatality rates, I don't think that COVID-19 will have as much as an effect as some other pandemics. But there might still be sweeping social changes from the economic effects of the pandemic.
One of my greatest concerns is a potential resurgence of communism. It's doubtful but I do see how socialists and communists could exploit this pandemic, push their positions on social issues, and take power. I often wonder if an anti-authoritarian communist regime could actually work, but in practice communism and socialism has a long history of human rights abuses, even though some aspects of it may seem appealing and trendy right now.
As far as political impacts, I think covid-19 will change the climate change conversation, giving ammo to both sides in the debate.
If anyone doubted that human activity is causing climate change, the observations of emissions and air pollution reduction comparing 2019 to 2020 should put that doubt to rest for good. Climate change is human caused & its a result of our economic activity. Period. Or rather, the sum total of 2020 number of humans engaging in 2020 economic activity. We can have a different economy, or we can have half as many humans in the current economic paradigm, and climate change won't be a big problem. We can't have both. Looks like Thanos was right.
Those people that argued that what causes climate change can be reversed by drastic action were right. Those who argued that we can nickel and dime our way as individuals to reducing our carbon footprints were wrong. What one person does to reduce their footprint is irrelevant. But when whole countries & the whole world stop doing all the things that emit crap into the atmosphere? Surprise! It gets a lot cleaner. Really quick. I've been amazed locally at how the wildlife spared no time in taking back over, once we humans stopped all our tak-a-tak-tak of the economy. On my walks the past few weeks I've seen animals I've never seen before on the same routes I always take.
Those people who countered their arguments by saying that taking such drastic action would result in extreme damage to the economy and people's lives were also right.
Last edited by redguard57; 04-23-2020 at 12:21 PM..
Statistically, COVID is killing more bosses and owners, and fewer workers. There will be more workers than businesses - and wages will go down. Not every "boss" that dies will leave his functioning business behind.
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