Did Inequality Really Increase During the Pandemic?

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It is widely believed that the Covid-19 pandemic and the reactions to it by governments and businesses accelerated an already-strong trend toward increasing economic inequality in the U.S. People on the political left think this and people on the political right do too, a heartwarming exception to the political polarization of our age.

This belief is also based on some actual evidence. Thanks to big increases in the prices of stocks and other assets after the initial shock of the pandemic, the nation’s billionaires have in fact added many billions to their net worths, while lots of affluent homeowners and 401(k)-holders have added hundreds of thousands. The risks of both Covid-19 infection and job loss have been higher for those who can’t work from home, and those who can work from home tend to have more degrees and earn more money than those who can’t. Poorer children have struggled much more with remote schooling than richer ones. And so on.

So yes it’s possible, maybe even likely, that when the dust settles and all the relevant data are available, we will conclude that economic inequality worsened over the course of the pandemic. But I wouldn’t be sure of it. Pandemics are one of the “Four Horsemen” of economic equalization described by historian Walter Scheidel in his acclaimed 2017 book, “The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century” (the other three being war, revolution and state collapse). Scheidel did have more devastating diseases in mind than what Covid-19 has proved to be so far, but as of January, Nobel-prize-winning economist Angus Deaton found that economic inequality among countries had decreased during the pandemic, although this didn’t hold on a population-weighted basis because the economy of India, the largest country in the bottom half of the world’s income distribution (it’s “lower middle-income,” according to the World Bank), had suffered greatly even before this year’s rise of the Delta variant.

Within the U.S., the very real forces pushing toward more inequality have been counteracted by an unprecedented outpouring of government aid, while trends boosting wages in the lower part of the distribution that were apparent before the pandemic seem to be accelerating now. The numbers available so far, while preliminary and in some cases a bit contradictory, aren’t really telling a story of exploding inequality.

Perhaps the simplest of these numbers, from the distributional financial accounts that the Federal Reserve began releasing quarterly in 2019, is the wealth share of the bottom 50% of the wealth distribution. It bottomed out in the second quarter of 2011 at a barely-there 0.4% of U.S. household wealth and has been rising most quarters since, reaching 2% in the first quarter of this year for the first time since just before the Great Recession started in December 2007.

Did Inequality Really Increase During the Pandemic?

This measure, which I’ve written about before, has its limitations. The Fed estimates wealth by combining household-level data on assets and liabilities from its triennial Survey of Consumer Finances, most recently conducted in 2019, with aggregate numbers from its quarterly Financial Accounts of the United States, and lumps the entire bottom half of the wealth distribution together because it doesn’t have enough information to do otherwise. It is able to slice things more finely within the top half, where the top 1% gained wealth share since the end of 2019 while those between them and the 50th percentile lost ground.

Did Inequality Really Increase During the Pandemic?

So yes it looks like wealth inequality increased during the pandemic within the top half, and most of the bottom half’s gains came from those just above it in the wealth distribution rather than the very richest. The bottom half did enjoy a bigger percentage wealth gain than the top 1% —30.3% versus 20.7% since the end of 2019 — although because it had so little wealth to start with, that amounted to just $609 billion in new wealth versus $7.1 trillion for the 1%. Still, the total wealth of the bottom 50% in the first quarter of this year amounted to 6.3% of that of the top 1%, up from 5.8% at the end of 2019 and the highest such percentage since 2007. In that sense, at least, inequality between the top and bottom decreased.

That sense may not be enough for most people who are concerned about inequality, but improved conditions for the less-well-off are worth celebrating in any case, and it’s not just the Federal Reserve that’s detecting signs of them. Researchers at the Urban Institute estimated last month that, thanks to big job gains and the benefits included in the American Rescue Plan approved in March and earlier pandemic-aid legislation, the share of Americans below the poverty line would fall to 7.7% this year from what they estimated using the same methodology to have been 13.9% in 2018. These estimates use what’s called the Supplemental Poverty Measure, a decade-old metric that attempts to better incorporate all the resources available to poor families, and the Urban Institute’s number for 2018 is a bit higher than the 12.8% SPM rate estimated by the Census Bureau and the 12.7% estimated by Columbia University’s Center on Poverty and Social Policy based on Census data. Measuring poverty is complicated, especially over time. But the trend does seem to be headed in the right direction.

Did Inequality Really Increase During the Pandemic?

Because the expected drop in poverty in 2021 owes so much to federal aid, some of it could prove temporary. But gains for the lower part of the income distribution are also coming from the private sector in the form of higher wages.

Did Inequality Really Increase During the Pandemic?

It’s hard to know what to make of the 2020 data, which may be skewed by low response rates to government surveys and big job losses among low-wage workers. But the high wage growth before the pandemic and so far this year seems to be for real, and all the anecdotal evidence from the job market points to it continuing. In previous economic expansions the wage gains at the bottom of the scale came only after years of job growth; this time it seems to be the norm from the get-go.

A full picture of the pandemic’s impact on income and wealth inequality will have to wait on more data. The most recent income-distribution numbers available are from 2019 in the case of Census Bureau survey data and 2018 for tax statistics from the Internal Revenue Service. The Census Bureau’s estimate of the Gini coefficient, a measure of how equally incomes are distributed that comes out to one if one person gets all the money and zero if everyone earns the same amount, has been rising at a somewhat slower pace in the 2000s than in the 1980s and 1990s. It even fell slightly in 2018 and 2019, although it seems too early to make much of that.

Did Inequality Really Increase During the Pandemic?

Such broad measures of inequality have taken something of a backseat in recent years to the statistics on income and wealth at the very top compiled from tax data by economists Thomas Piketty, Emmanuel Saez, Gabriel Zucman and others. Saez and Zucman’s most recent updates of the U.S. data (and revisions in response to critiques from other economists), show a decade-long plateau in the share of income going to the top 0.1% and a more recent halt in wealth-share gains.

Did Inequality Really Increase During the Pandemic?

Given what we know from other sources it seems pretty likely that the income and wealth shares of the top 0.1% rose in 2020, and given that I don’t have a great explanation for why inequality was declining — or at least somewhat on hold — before the pandemic, I’m not going to make any confident predictions here about what it will do after.

One thing that is clear from the above chart is that inequality can decline, and decline by a lot. Amid the great equalization of the mid-20th century, economist Simon Kuznets (another Nobel winner) wrote an influential paper in 1955 speculating that it might be in the nature of economic modernization and industrialization for inequality to at first increase and then decline. After decades of rising inequality in the U.S. and other rich countries, such examinations are now more likely to conclude that a growing gap between rich and poor is an inevitable trait of capitalist economies (Piketty’s “Capital in the Twenty-First Century”) or human society in general in the absence of calamity (Scheidel’s book). They may be right! But again, I wouldn’t be sure of it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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