Compass Money: Inequality in the Time of COVID-19

Ever since the initial outbreak of the novel coronavirus in the Wuhan province of China last December, countries have struggled to mount effective responses to the pandemic. The world’s two leading powers, the United States and China, represent two divergent models for responding to the pandemic. Yet both countries’ models are characterized by a two-track recovery that benefits the rich over the most vulnerable. 

China’s recovery efforts have focused primarily on stimulating investment in infrastructure and construction in an effort to boost domestic production. This approach sharply contrasts the more consumer-oriented recovery strategies of many Western Countries such as the United Kingdom., France, and Germany. As a result of China’s 3.6 trillion yuan ($500 billion) stimulus, which adds to an already increasing debt burden, the IMF predicts that the Chinese economy will grow 1.2 percent in 2020, and will continue to grow at higher rates throughout the next decade. 

On the flip side of China’s apparent economic success, its urban residents, most of whom are low to middle-income, have seen a 2 percent decrease in per capita disposable income. Furthermore, despite an estimated unemployment rate in China of 10 percent, only 2.1 million adults claimed unemployment insurance by the end of June, down from 2.3 million adults last June (before the pandemic). This disparity is a result of China’s policy of not giving unemployment benefits to its 290 million migrant workers. These workers are disproportionately impacted by the pandemic and more likely to be unemployed because of it. 

While low and middle-income individuals struggle to get by in China, some lacking government assistance, members of China’s upper class often keep their jobs, as they can more easily shift to remote work. Wealthy individuals also disproportionately benefited from Chinese investments in the housing market and lower prices at the new duty-free shops opened by the Chinese government in affluent neighborhoods. 

The United States’ recovery efforts, in contrast to China’s, focuses more on consumers. Combined, the United States Congress and Federal Reserve spent more than a quarter of its GDP ($5.4 trillion) to provide increased benefits and direct cash payments to citizens, pumping money into the economy. 

While United States spending programs staved off the worst consequences of the pandemic by providing people with enough money to pay rent and by saving small businesses, a failure to adequately contain the virus prevents a safe reopening in the United States and consequently strains welfare programs. Food insecurity persists at record levels in the United States, and 50 percent of low-income households report wage or job loss due to the pandemic. 

The Chinese and American responses to the pandemic are very different. China has tried to piggyback off of increased demand in America and Europe by focusing on production, and the United States has focused on direct aid to consumers. Despite these differences, both countries’ programs have benefited their affluent citizens more than their low-income populations.