Income inequalities – pandemic hurts the middle class

COVID-19 has widened income inequalities. Not everyone is equally vulnerable to the virus, and similarly, not everyone has been hit economically to the same degree. Lockdown measures and the economic crisis have hit low-wage industries such as retail, gastronomy, tourism and leisure, and thus lower- and middle-income households particularly hard. The global middle class was estimated to be 54 million people smaller in 2020 than that projected prior to the pandemic, according to Pew Research Center.1

As middle-income households hit hard by the pandemic grapple with lower incomes, higher healthcare costs and the financial consequences of unemployment, they will likely reconsider their insurance spending. The COVID-19 crisis will thus likely increase protection gaps.2 Low- and middle-income households are not affected the same in every country. For example, the middle class in China is estimated to have suffered much less in last year’s economic downturn than the middle class in India.3

Differences in the speed and effectiveness of vaccination programmes will likely also contribute to differing economic recovery paths across countries, which will impact how quickly those in low-wage industries are able to go back to work and resume earning a living, and which in turn will impact how demand for insurance recovers in different locations.4 Unequal social bearing of the pandemic has also been seen across generations, which may further impact the longer-term outlook for the middle classes and insurance demand in different markets.

Government aid packages and social safety nets can buffer the impact of the pandemic on lower-income households. In the US, for instance, massive stimulus measures actually raised the incomes of some lowwage workers during the first few months of the pandemic.5 However, not all countries are able to introduce generous fiscal-relief measures and for those that have done so, sustaining these will be challenging. In the medium term, as governments use up fiscal and monetary headroom with stimulus measures, funds available for social safety nets may decrease. In some cases, post-pandemic fiscal policies like higher rates of corporate tax may be implemented to fund social safety nets.

References

1 Middle income were defined in this analysis as incomes of $10.01-$20 a day; R. Kochhar, “The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up
Sharply”, Pew Research Center: Fact-Tank, 18 March 2021, https://www.pewresearch.org/global/2021/03/18/the-pandemic-stalls-growth-in-the-global-middleclass-pushes-poverty-up-sharply/
2 I. Fan et al., sigma Resilience Index 2020: global resilience put to the pandemic test, Swiss Re, 27 August 2020, https://www.swissre.com/institute/research/sigmaresearch/2020-resilience-index.html
3 R. Kochhar, “In the pandemic, India’s middle class shrinks and poverty spreads while China sees smaller changes”, Pew Research Center: Fact-Tank, 18 March 2021,
https://www.pewresearch.org/fact-tank/2021/03/18/in-the-pandemic-indias-middle-class-shrinks-and-poverty-spreads-while-china-sees-smaller-changes/
4 sigma 7/2020: rebuilding better, Swiss Re, 11 November 2020, https://www.swissre.com/institute/research/sigma-research/sigma-2020-07.html
5 R. Avent, “Covid-19 leaves a legacy of increased inequality”, The Economist, 17 November 2020, https://www.economist.com/the-world-ahead/2020/11/17/covid-19-leaves-a-legacy-of-increased-inequality

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