Highlights Vol 24, No. 05 - May 2020

Severe downturns in labour-intensive sectors spell trouble for global inequality

The global economic downturn caused by the COVID-19 pandemic is shaping up to be the worst since the tragically consequential Great Depression. Countless comparisons have been made between the current economic situation and the global financial crisis of 2008. Although similar in terms of their impact, especially on employment and income, key differences make the current crisis particularly dangerous.

The global financial crisis began in 2008 with the bursting of the housing bubble in the United States accompanied by the subprime mortgage meltdown. The collapse of major banking institutions followed, along with a precipitous fall on stock markets across the world and a credit freeze. Bankruptcies increased, credit dried up and unemployment skyrocketed. This was the beginning of the Great Recession.

This time, soaring unemployment came first as many businesses were forced to shutter because of nationwide lockdowns in most developed economies. Rising unemployment and shrinking revenues are choking the demand for products and services, which will inevitably lead to sharp increases in bankruptcies and even more lay-offs.

Millions of low-skilled workers employed in retail trade, restaurants, sports and recreation became the first casualties, as the pandemic containment measures largely shut down economic activities in these sectors.

The pandemic is disproportionately hurting those who are least able to withstand an economic shock—low-skilled, low-wage workers both in formal and informal sectors. While benefits of an economic boom trickle up, the losses from a crisis trickle down, with the poor and the most vulnerable in societies absorbing most of the setbacks.

The negative distributional consequences of the pandemic are likely to be more pronounced than the global financial crisis in terms of scope and magnitude, as low-income households will be hit simultaneously both on the economic and health fronts.

Travel and Tourism

Tourism and travel were the first, direct casualties of COVID-19. The UN World Tourism Organization projects a 20–30 per cent decline in international tourist arrivals in 2020, worlds apart from the four per cent decline in 2009, in the direct aftermath of the global financial crisis.

Likewise, the International Air Transport Association (IATA) estimates a 38 per cent drop in passenger traffic in 2020, compared to the 2019 levels, which translates into $252 billion revenue loss from passengers.

If global tourism—a sector that employs more than 300 million people—were to collapse, the consequences would be catastrophic for the poorest. The loss of income—combined with limited opportunities to find jobs in other sectors of the economy—would lead to higher levels of poverty and inequality in most tourism-dependent economies across the developing world.

Manufacturing

The COVID-19 pandemic is also taking a major toll on the manufacturing sector, which employs over 460 million people worldwide. As the pandemic continues to spread, manufacturing activities have stalled or are slowing down around the world, with many economies seeing their manufacturing sectors contracting in March.

Global manufacturing was already under pressure from the rising trade tensions. A prolonged economic crisis, with reduced global demand, especially for durable goods, would suppress real wage growth and inevitably lead to higher income inequality in many developing countries.

The fall of manufacturing activities could spill over across national borders through the global trade networks. Such a spillover effect would be potentially disastrous for global manufacturing, as nearly half of the world’s exported goods and services either involve inputs from more than one country or are later to be—upon further processing—part of future exports from the importing countries.

With shrinking exports revenues from tourism, commodities and manufactured goods, developing countries are facing significant fiscal space constraints that prevent them from effectively mitigating the pandemic’s adverse impacts, including on rising inequality.

It is therefore imperative that when development partners consider debt restructuring, moratorium and other reliefs, tourism- and commodity-dependent economies receive additional financial support. The support must come as soon as possible, not three months later. Any delay will mean an amplification of the catastrophic impact of rising economic inequality, severely limiting the prospects of sustainable development.

Access the May Monthly Briefing on the World Economic Situation and Prospects to learn more.

Trust in science saves lives

To protect the lives of people, on a healthy planet – we must trust science. With more than 3 million confirmed cases of COVID-19 around the world, our global response to the pandemic requires a far more collaborative relationship between scientists and policymakers – and more public trust in science — according to a new policy brief issued by UN DESA.

According to the brief, scientific assessments on COVID-19 are similar around the world but the time and manner of response vary considerably across countries. There is a need to reassess the functioning of science-policy interface systems, where they exist; and to build them up where they are weak or non-existent, in order to preserve trust in science and government.

Public trust in science is essential for science-based policies to succeed. Where public trust is high, clear and direct—and where incorrect and damaging information is effectively countered—communications from scientists are likely to be most effective.

In the case of COVID-19, all individuals must trust the scientific guidance if they are to alter their behavior and lower the rates of transmission. For instance, the phrase “flatten the curve” has proven effective in encouraging people to remain indoors to limit the spread.

Additionally, scientific assessment must be used properly, and governments must act with greater urgency on global scientific assessments. International collaboration between scientists and experts is a powerful way of bringing evidence and scientific consensus to the attention of policy makers and to inform their actions. In September 2019, the Global Preparedness Monitoring Board—an independent expert body co-convened by the WHO and the World Bank—called for a global response to “a rapidly spreading pandemic due to a lethal respiratory pathogen.”

Earlier assessments too had warned of such an eventuality: Taking action on these recommendations then would have built preparedness within and across countries, and hastened an effective response to the current pandemic. Other recent scientific assessments, including the 2019 Global Sustainable Development Report and the 2019 Sustainable Development Goals Report, have called for urgent change in the relationship between people and nature.

Much of the needed actions will need to come from countries themselves, but international cooperation, supported by the UN system, can facilitate progress in all these areas. Many such initiatives are in place but need to be scaled up.

To access this and other policy briefs on the impacts of COVID-19 and the policy recommendations for a sustainable recovery, visit UN DESA’s dedicated web portal for COVID-19.

Photo: World Bank

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