The economic and social fallout from COVID-19 has prompted both domestic and international observers to call for building back more equitable economies.
These calls are well founded. Income inequality in the United States is now approaching extremes not witnessed since the Gilded Age (see Figure 1). Vast inequalities also persist across nations, despite some improvement in developing countries in recent years.
The COVID-19 outbreak has only worked to exacerbate income inequality in the US, especially among people of color. As Federal Reserve Governor Lael Brainard details, “Federal Reserve staff analysis indicates that unemployment is likely above 20 percent for workers in the bottom wage quartile, while it has fallen below five percent for the top wage quartile.”
These facts have led many to call for building a more equitable post-COVID-19 society, with many observing that the structural racism and extreme class inequality evident in these numbers puts democracy at risk. But these calls often fall short in the details of how this can be achieved. Supporting social enterprise as a job creation strategy might provide an important piece of the puzzle.
The rise in US economic inequality over the past four decades is easily documented. Indeed, the size of the middle class, in terms of adults living in middle-income households, has shrunk from 61 percent in 1971 to 51 percent in 2019. Most recently, the COVID-19 pandemic has exacerbated income inequality in the US by hitting low-income earners the hardest due to the vulnerability of their workplaces to closures, downsizing, and wage decreases. Moreover, many of these jobs disproportionately employ women of color. As result, the impact of COVID-19 reinforces class, gender, and racial hierarchies (see Figure 2). While economic relief packages provide cash payouts, unemployment checks, and support for businesses, the long-term effect of the COVID-19 economic downturn is not expected to be fully reversed for some time.
A similar phenomenon is playing out on the international stage. Large inequalities between (and within) wealthy and poor countries have persisted despite improvement in some countries in recent years. Unfortunately, COVID-19 has reversed many of the gains that had occurred and threatens a return to inequality levels not seen for two decades (see Figure 3), with the greatest increases in extreme poverty expected in Sub-Saharan Africa and South Asia. Indeed, while COVID-19 has not as yet had the health impact in Sub-Saharan Africa in particular that many feared, there have still been severe implications for t