Rich becomes Richer and poor poorer
India is a highly unequal economy beyond contestation. And that was so before the pandemic struck. While precise estimates of the level of inequality in India are hard to come by - household surveys tend to massively under-report consumption, income and wealth - it's hard to dispute the notion that COVID has deepened existing fault lines, exacerbating entrenched inequalities. The rise in the fortunes of the very rich during this period, hen juxtaposed against the misery of the millions of migrant workers who had to walk back to their villages, is a stark reminder of the extent of economic disparities. To that extent, the latest edition of the World Inequality Report serves as a useful reminder of the concentration of income at the very top of the pyramid. The top 10 per cent earns 57 per cent of the national income. Within the top 10 per cent, the very elite 1 per cent earns 22 per cent. In comparison, the share of the bottom 50 per cent in national income has declined to 13 per cent. And this is only one estimate of inequality. In the case of inequalities based on wealth, the numbers are even more skewed.
By and larger, the discourse on inequality in India tends to center around disparities in consumption, income, and wealth. But countries like India are also marked by high levels of inequalities in "opportunities ". In such societies, an individual's class of origin, his household of birth, who his parents are, tend to have a significant bearing on his educational attainment, his employment and income prospects, and as a consequence, his class of destination. In such countries, characterized by low levels of social mobility across generations, children born in disadvantaged households have a lower chance of moving up the income ladder. While these bonds may well have weakened over time in India, the question is to what degree has the disparities, also impacted social mobility?
To the extent that covid has led to a worsening of education inequalities, induced labor market scarring, and exacerbated income inequality, it is likely to depress social mobility. While some effects will be evident in the immediate, others will take shape over time. Take education. The extended closure of schools and the shift to online modes of education has widened the learning gaps between children from poor and affluent households. With early education being critical to creating a semblance of a level playing field, that younger child from low-income households was more deprived of mediums of learning, smartphones will reflect in lower learning outcomes. The ASE R 2021 report attest to this.
Children born to parents with lower levels of education were less likely to have access to a smartphone, although even the availability of a smartphone in the household may not have necessarily led to greater access for children. Over a fourth of children in households with a smartphone could not access it for those in the lower grades, the numbers are significantly higher. This has already begun to impact learning outcomes - children are unable to catch up with their curriculum.
To what extent these learning gaps will rise or fall over time is difficult to estimate. Needless to say, the larger the gaps, the greater will the effort required to bridge them. But, a drop in foundational skills, an inability to catch up, "educational scarring" as some have called it, is bound to impact their life chances. Education, after all, provides pathways to upward mobility.
Then there is the issue of jobs. From the labor market data during this period, three broad trends emerge, all of which have worrying implications for social mobility.
First, since the onset of the pandemic, there has been a decline in labor force participation. According to CMI E data, the labor force participation rate has fallen from 42.7 percent during September-December 2019 to 40.2 per cent during May-August 2021. This means that despite a "young" population, the number of individuals looking for jobs has actually fallen, perhaps dismayed by the lack of employment opportunities.
Second, over the same period, the unemployment rate has risen from 7.5 per cent to 8.6 per cent. This implies that among those looking for jobs, those unable to find jobs, perhaps even at lower wages, have risen.
Third, among those with jobs, more are increasingly being employed as casual wage labor. This labor market scarring has implications for social mobility. Being unemployed for a long period or shifting to less paying, less productive jobs will have a bearing on an individual's lifetime earnings. This will weaken avenues for upward mobility for entire households.
A swift return to a higher growth trajectory will heal some scars. Periods of rapid growth lower obstacles to mobility, create opportunities to move up the income ladder. But if growth is subdued and uneven, if the benefits flow disproportionately to those at the top end of the income distribution, to the owners of the capital, and among those employed, to the more educated, skilled sections, as seems to be the case now, then this will only hinder social mobility. Paradoxically though, as high mobility perhaps blunts concerns over high inequality, it is of greater consequence in highly unequal economies.
Left unaddressed, this toxic combination of high inequality and low social mobility will lead to greater demands for redistribution. The cl amour for levying a wealth/inheritance tax will only get louder, as will demands for equal taxation of income from labor and capital, considering that those at the very top of the income pyramid get a larger share of their income from capital. Political expediency will demand bowing to such demands, more so when every action is viewed through the prism of politics. Arresting this slide is not going to be easy. The world of Horatio Alger seems distant.
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