As many as 400 Italians lost their jobs between March and April, while the number of employed fell below the 23 million threshold and the inactive (ie those discouraged from looking for a new job under current conditions) increased by 750. These are the data released by Istat, which photographs the dramatic effects of the Covid-19 crisis on the labor market.
At the end of May, in his Final Thoughts, the Governor of the Bank of Italy, Ignazio Visco, had highlighted the risk of a growth in inequality as a result of the pandemic. Here is a first confirmation. From reading the Bank of Italy Annual Report, it emerges that even before the health emergency, the families that were located in the lowest fifth of the income distribution had suffered a reduction in income twice as large as those belonging to the highest fifth.
AN UNDERSTANDING TREND FOR A LONG TIME
Inequalities manifest themselves with a growing income gap and a concentration of wealth on an ever smaller share of the population. The Gini index, used to measure this phenomenon, shows how, in Western countries, after a trend towards income equalization which took place in the decades of the economic boom, disparities have started to grow again until they reach the levels of the early 900s as a result of the crises of 2008 and 2012. Today, however, the effects of Covid 19 are accelerating the widening of the gap to the point of risking making it unsustainable.
Despite the unexpected growth in employment just announced (but concentrated in those sectors that had been temporarily closed due to lockdown, such as restaurants, bars, laundries), millions of citizens in the US have signed up for unemployment. In an article by The New Yorker a few weeks ago it was reported that 40% of Americans do not reach $400 in emergency savings and that for low-income earners, three days without work is enough to deprive them of the means to purchase the groceries needed for their families.
THE GAP IS NOT ONLY ECONOMIC, BUT ALSO SOCIAL AND HEALTH
To date, for example, in the midst of the crisis, there is no doubt that the lowest-income workers are those forced to suffer the greatest risks of contagion due to the need to work in factories, shops or on the streets, multiplying the number of contacts and opportunities to contract the virus. Their indispensable role has often been formally recognized, although reality produces discordant outcomes. While with the relaunch decree, in fact, the recognition of migrant workers was brought home, the Court of Milan ordered the commissioner of the Italian branch of Uber on suspicion of exploitation of riders who make home deliveries.
Disparities and injustices usually tend to be exacerbated in moments of shock, be they economic, health or, as in the current situation, both. Discouraging war reports also arrive from the USA. At the beginning of the pandemic, Bloomberg headlined: “Covid 19 is becoming the disease that divides us by race, social class and age”. More recently the New York Times reported findings from a survey that 52% of low-income earners said they or a family member had lost their job or suffered a wage cut due to the coronavirus. This percentage is 44% for low-income workers of African descent and 61% for Hispanics, compared with 38% for white Americans.
Studies on the pandemics of the past centuries have shown a long-term increase in the wages of the weakest categories. However, we must bear in mind that this occurred, in the vast majority, due to the tragic level of mortality of those events and the consequent scarcity of supply for the performance of menial jobs. Today, paradoxically, in a context that is fortunately better from a health point of view, a worsening of economic and social conditions is to be expected. Especially since in Europe, as in the USA, it is difficult to identify a party or a trade union capable of protecting this large and anonymous group of poor and silent workers, due to the conditions of fragmentation and extreme isolation in which many of their categories find themselves operate.
IN THE MEANTIME, WHAT IS HAPPENING TO THE MIDDLE CLASS?
Thanks to the greater possibilities of social distancing guaranteed by smart working, the middle class currently appears privileged. At least from a health point of view. And for the rest? This social stratum is shrinking in all Western countries, as a joint effect of global competition, technological innovation and less bargaining power in a world made up of digital monopolies that override national borders and rules.
We are now far from the era of post-war development which determined the growth of a vital middle class, according to a virtuous circle which, starting from large-scale production and the birth of large corporations, created more employment, higher wages and thanks to they the development of mass consumption.
Today, estimates the OECD, there is a gap of at least 10 percentage points, in terms of belonging to the middle class, between the old baby boomers and the current millennials and the latter run the constant risk of leaving it.
REORGANIZATION OF WORK AND EMPLOYMENT EMPLOYMENT
Smart working which has favored distancing has started a process of reorganization of clerical work. Even the most rebellious companies in adopting it have discovered that it works and that it becomes even more productive if it is combined with the use of already tested technological platforms: from those that manage back office procedures to those of CRM, assistance from remotely, via artificial intelligence, for customers and after-sales activities.
This accelerates investments hitherto postponed, to create in the shortest possible time a new and more efficient way of working. Something that resembles what happened with the advent of mainframes in the 50s and 60s of the last century, with the destruction of a large part of the traditional clerical works.
Only that today everything is happening much faster and will probably lead to the disappearance of many white-collar occupations, even of medium-high level, which in the organizational structures prior to the Coronavirus had their own reason to exist.
In the coming months, therefore, regardless of the trend of the pandemic, it is possible to expect major transformations in the organization of work, which will particularly affect middle-class workers.
INEQUALITIES AND RISKS TO THE ECONOMY
The effects of these phenomena on the economy are evident: the data on employment will worsen, especially among older workers who are more difficult to relocate and among young people with no university degrees and lower qualifications.
This will inevitably lead to a further contraction in domestic demand, which is currently weak due to the effect of already high unemployment and greater concern about the future effects of the pandemic, which leads to increased savings for those who can afford it.
Governor Visco's signal of concern must therefore be taken carefully. Current trends cannot be contrasted with buffer measures, but require the development of long-term programs aimed at intervening structurally on the labor market as well as on industrial and investment policies, in order to combine growth and employment of resources.
Any macroeconomic goal aimed at recovery and reduction of public debt needs lower inequalities to be able to come true.
°°°°°° Fabio Menghini is the author of the book “Secular stagnation. Comparing hypotheses” published by goWare
