The Covid, an accelerator of income and wealth inequalities in France

According to a recent study by the World Bank, the period of Covid-19 was marked by an exceptional worsening of inequalities in the world.

Indeed, the pandemic would have led to tilting more than 100 million people in poverty in 2020, thus greatly reducing the progress made over the past 25 years.

The increases in economic and social inequalities have taken different forms. A recent study in the United States, for example, showed that racial inequalities were still largely accentuated in many American cities. The “Nobel” prize for economics Joseph Stiglitz, for his part, noted an explosion, particularly marked on the other side of the Atlantic since the Covid-19 pandemic of inequalities in hospital care. Another study, carried out in the United Kingdom, drew up an alarming observation concerning inequalities between recent and former migrant populations.

Rich countries suffer from significant loss of years of life per capita, and inequalities widen more or less, depending on the economic systems and their social shock absorbers. But what about specifically in France? Has the pandemic changed the landscape of economic and social inequalities? What are the possible responses (particularly fiscal ones)?

Workers on the front line

Extract from the study “France, social portrait”, Insee (2020).

An INSEE economic report published at the end of last year characterizes the damage caused between March and April 2020 by the health crisis. The consequences are severe: more than 27 deaths (+ 27%), all causes combined, compared to the same period in 2019; Île-de-France (+ 91%) and Grand-Est (+ 55%) are over-represented among the regions; over-representation also of the oldest people, people born abroad and those living in the poorest municipalities and the densest populations; socially, workers and employees who continued to visit their workplaces were most heavily exposed to the virus.

The consequences on employment are also significant: 715 jobs were destroyed in the first half of 000, especially in the interim. Partial unemployment mainly concerned blue-collar workers (2020%) and employees (54%), while executives more largely worked from home (36%).

But the pandemic has also and above all reinforced the two main sources of inequality in France: income and wealth. Thus, the loss in gross disposable income, from the second quarter of 2020, is the highest in a quarter ever recorded since 1949 (-2,7% after -0,8% in the first quarter).

Extract from the study “France, social portrait”, Insee (2020).

The deterioration in the gross disposable income of low-income households seems to be particularly noticeable. Indeed, among the poorest 10% of households, 35% perceive a deterioration in their financial situation. This proportion is twice lower for the wealthiest 10% of households.

Of course, the measures taken by the government (partial activity allowances, exceptional solidarity aid linked to the health emergency paid in May 2020 to the most precarious households, benefits linked to absences for childcare, unemployment benefits and extended social minima, etc.) were intended to partially compensate for lost income.

Nevertheless, the High Council for the financing of social protection confirmed that the most economically and socially fragile populations had been severely affected during the period of pandemics, based on the results of a survey presented at the end of 2020.

French singularity, in this opinion survey, retirees are rather spared financially: 89% of them consider their situation stable since the start of the first confinement.

Covid-19 has increased disparities, but at different rates - and differently in nature - according to several parameters. A first factor relates to the socio-professional category. Indeed, 53% of artisans and traders and 37% of workers express a feeling of deterioration in their disposable income.

Among these categories, those who were able to at least partially maintain their activity report a lesser deterioration in their situation (19% to 22% depending on the proportion of teleworking); this is not the case for those who have had to endure a period of technical or partial unemployment who more frequently declare a financial loss linked to the first confinement.

First, although some companies have supplemented the partial unemployment benefit, the total maintenance of remuneration was not guaranteed beyond the minimum wage. The second factor is the presence of a child under three in the family, a parameter which plays a determining role in the perception of a financial deterioration. Regardless of other factors (age, socio-professional category, standard of living, etc.), the presence of a child under 3 increases the risk of a deterioration in the financial situation by a quarter.

A poorly allocated savings surplus

As for wealth inequalities, we already know that they were deep in France before the pandemic. Wealth is concentrated in the hands of a small part of the population. In France, in 2018, the wealthiest 10% owned nearly half (46%) of total household wealth. According to INSEE in its report on household income and wealth, the standard of living of the wealthiest 20% of households was, in 2018, 4,45 times higher than that of the less well-off 20%, compared to 4,35 times in 2008.

Wealth is linked to inheritance and savings. However, the savings surplus accumulated during the health crisis, recently estimated at around € 157 billion by the Banque de France, are such that the risk is now that this accumulated savings will further aggravate inequalities, through financial investments and inheritance.

Gross savings according to the level of average consumption in 2019.
Focus on “Consumption, savings and financial weaknesses during the Covid crisis” / CAE (January 2021).

In addition, household savings remain very unevenly broken down according to household income levels. Based on data from the Economic Analysis Council (CAE), while savings showed a increase in 2020 of 2,5% for the 10% of households that consume more, it suffered a decrease of 2,8% for the poorest 10%. According to Vie publique, 70% of the savings surplus would thus have been accumulated by 20% of households only.

The whole question is therefore how to stop the expansion of inequalities. One of the solutions would be to operate a inheritance tax reform, according to Louis Maurin, director of the Observatory of inequalities. This would involve taxing more broadly the heritage which is passed on from generation to generation, the aim being to reduce the weight and influence of birth inequalities.

An OECD report presented last May underlined that inheritance and gift taxes could play an important role in reducing inequalities. The international organization ranks France among the best students in this area. Sarah Perret, economist at the OECD, points out, however, that certain tax loopholes, or exemptions, allow these levies to be avoided. Life insurance, for example, is non-inheritance, which means that its beneficiary can inherit it without paying taxes, and therefore be free from its contribution to redistribution.

Without a response to inequalities, we can therefore only observe that the crisis will not only have worsened inequalities, but will also have confirmed them over time by further increasing their social effects.

David Bourghelle, Lecturer in finance, LUMEN laboratory, University of Lille; Fredj jawadi, University professor in macroeconomics, LUMEN laboratory, University of Lille et Philippe Rozin, Lecturer in finance, LUMEN laboratory, University of Lille

This article is republished from The Conversation under Creative Commons license. Read theoriginal article.

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