Covid -19 and inequality
Finally, many small businesses will be forced to close, 24 increasing the market share of the larger corporations that replace them. 25 As ‘ an unsettled economy and uncertain outlook favour large incumbents with deep pockets ’ 26 and two thirds of the increase in earnings inequality since the 1980s has been caused by greater wage disparity between firms 27 (figure 3), the surge in profits that large corporations can hence be expected to make will lead to further inequality, 28 if higher profits can be translated to higher wages for the corporations’ employees. Furthermore, as greater market power allows firms to raise their prices, 29 poorer households may be affected by higher prices, further increasing inequality as they can now save an even smaller percentage of their earnings relative to richer households.
Figure 3. Counterfactual Rise in Inequality (from 1981 to 2013) with Between- or Within-Firm Changes Only. 30
Policies
addressing
these heightened inequalities need to focus on keeping workers in jobs in the short-run, and on the quality of these jobs in the long-run. Additional measures should be put in place to help workers that are left behind.
The first thing that needs to happen, perhaps only in the short term, is a tax increase. According to the OBR , the government is anticipated to borrow £372 billion this year, 31 and is expected to need to augment taxation revenue by £60 billion a decade 32 to deal with that debt while avoiding austerity (which would
24 Verity, Andy. ‘Coronavirus: A fifth of smaller UK firms 'will run out of cash'.’ BBC, April 1 st , 2020. https://www.bbc.com/news/business-52114414.
25 Jose Marria Barrero, nick Bloom, and Steven J. Davis. ‘Covid - 19 is also a reallocation shock.’ June 2020:1-60. 26 Jose Marria Barrero, nick Bloom, and S teven J. Davis. ‘Covid - 19 is also a reallocation shock.’ June 2020:1-60. 27 Jae Song et al . ‘Firming up inequality.’ The Quarterly Journal of Economics , Vol 134, Issue 1 2019:1. https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/fui_qje.pdf. 28 Ken Mayhew, and Samuel Willis. ‘Inequality: an assessment.’ Oxford Review of Economic Polic y, Volume 35, Number 3, 2019: 351 – 367. 29 Jae Song et al . ‘Firming up inequality.’ The Quarterly Journal of Economics , Vol 134, Issue 1, 2019: 21. https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/fui_qje.pdf. 30 Ping Chan, Szu. ‘Coronavirus: UK faces ‘explosive’ debt levels.’ BBC, July 14 th , 2020. https://www.bbc.com/news/business-53402176. 31 Giles, Chris. ‘Tax rises of £60bn needed to stabilize finances, says watchdog.’ The Financial Times , July 14 th , 2020. https://www.ft.com/content/a3ba1acc-5cf7-42de-86dc-176285af7715?shareType=nongift.
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