Poverty in the pandemic

The COVID19 pandemic slump has raised poverty across the globe.  JP Morgan economists have tried to measure the increase in poverty using household income and consumption survey data from the World Bank’s PovcalNet database.  JPM define the poor (or those in deep poverty) as living on less than $2 per day (which is the ludicrously low World Bank level); ‘those vulnerable to slipping into poverty’ as living on $2-$10 per day (which is really a better measure of poverty); ‘middle income’ are those living on $10-50 a day (some leeway for a life); and then ‘high-income’ as living on more than $50 per day or about $18,000 a year.

Before COVID, about half of the 6.5bn people living in the so-called ‘emerging markets’ could be considered ‘middle income’.  That means that at least 3bn are in dire poverty (‘economically vulnerable’ or worse).

Using these definitions, JPM finds that, during the COVID slump, there was a sharp increase in global poverty. Using the World Bank data, the number in poverty (defined as living on less than US$1.90 per day) increased by 97 million in 2020—the first net increase in global poverty since the Asian Financial Crisis (Figure 3). A separate Pew Research Center study finds that the pandemic pushed 131 million people into poverty.  And these poor are not rural peasants, but urban and often educated.

The increase in the poor and the corresponding fall in the ‘middle income’ population varied from country to country.  Economies with the deepest contractions in 2020 (such as Peru and Argentina) experienced the greatest declines in the ‘middle income’ group.   Overall, it was the ‘vulnerable’ that grew the most (1.9% pts) as a share of the population while middle income share was reduced the most (-1.8% pts).

Some countries avoided the worst.  China’s ‘first-in-first-out’ COVID-19 experience did not entirely shield the country from a contraction of the upper and middle classes, but there was only a small expansion of the poorest population, according to Pew estimates.

Before the pandemic, Pew estimated that almost 100 million people made up India’s middle-income population in 2020, with a further 22 million in the upper-middle ranks. But the pandemic hit India hard with real GDP contracting 7% in 2020, so the middle and upper-middle populations suffered dramatically (jointly declining by 39 million people—Figure 5). Meanwhile a staggering 75 million people were estimated to have fallen into poverty—accounting for almost 60% of the new global poor.  Such was the contrast between the world’s two largest populated countries.

In China, there had been a sizable addition of 247 million people to the middle-income tier from 2011 to 2019. And the upper-middle income population had nearly quadrupled, from 60 million to 234 million. On both fronts, China alone had accounted for the majority of the increase in these tiers globally. Most people in India were in the global low-income tier before the pandemic. – some 1.2 billion people accounting for 30% of the world’s low-income population.

In China, there are now more people in the global middle- and upper-middle income tiers than in poverty and the low-income tier. Although about 10 million people in China are estimated to have fallen out of the middle class in the pandemic downturn, this is a small share of the 504 million who were in the middle class ahead of the pandemic. Likewise, the expansion of the low-income tier in China from 611 million to 641 million or the number of poor from 3 million to 4 million during the pandemic is comparatively modest in number.

As people fall into deep poverty, they have no funds to support their education and keep them healthy.  And that means, apart from suffering other obvious consequences, their productivity falls, damaging the economy as a whole. In Figure 6 we find that China’s investment in education and health per person (PISA score) is high at over 2 standard deviations from the global average and better than any other ‘emerging’ country (even those with higher per capita incomes like Singapore or Korea).

The pandemic has been a disaster for India’s people, driving millions into deep poverty, while the Chinese people have mostly avoided a dip into poverty.  Indeed, the Chinese economy has expanded the most among the major economies in the two years since end-2019 and the start of the pandemic – more than four times the expansion in the US and six times that of India.  Indeed, most major economies contracted.

11 thoughts on “Poverty in the pandemic

  1. I get a stomach ache when I read poverty statistics that only show an amount of money for daily consumption. Many subsistence farmers who do not produce for the market, that is to say, do largely without money, are lumped together with wage earners who either have no job or only a starvation wage. Much of the “disappeared poor” in China and elsewhere is based on “primitive accumulation,” that is, the separation of the peasants from their land and their transformation into wage laborers. In statistics it looks brilliant, in reality these people are exchanging rural misery for urban misery.
    Wal Buchenberg, Hannover

      1. The facts are clear when you compare the proportion of the urban population in China in 1980 with the proportion of the urban population in China today. And the state statistics show this influx of rural populations in the cities too low, because most precarious workers in the cities still have their official residence in the countryside.

      2. Finding that migration from farms to the city having a vision of farmers from the first world that has a minimum of government support and some social assistance is a brutal simplification. Living in the interior may even have food, but it has no health, education for children, electricity and often neither retirement. People migrate not because they are dumb they know that despite everything the life of cities have opportunities for their children.
        Another thing, who said landowners allow peasants to produce subsistence agriculture that manages some surplus?
        Perhaps they are using standards of highly subsidized European agriculture as this occurred in third world countries.

    1. I am a communist. I neither defend subsistence farmers nor do I advertise wage labor. Both are miserable lives.

  2. Strong article and well researched. It was always going to be the case that the pandemic would kill more people indirectly via poverty, not only in the poorer countries but in the richer ones as well, only more slowly, than kill directly through illness. In fact even that is not correct, the virus like all viruses hunted out the vulnerable, the elderly and those suffering from chronic illnesses whose main cause is of course poverty.

    One point however. While you used ‘middle income’ or ‘lower income’ in quotation marks, you did slip into using middle class when referring to China’s 504 million strong middle class. This may sound pedantic but it is not. Workers who earn more, don’t automatically become middle class, they remain workers dependent on employment and therefore wages. I am sure you will agree with me we have to retain class categories. If we use income then a worker who is paid more than a shopkeeper becomes middle class joining the shopkeepers of the world.

    1. I’m a little off topic, but it’s relavent. — The disorder is serious. In the past 12 months, July 2020 to July 2021, U.S. wealth has increased by more than the annual GDP, more than all personal income. Wealth is exploding. This is a little complex. The Federal Reserve report Flow of Funds, page 2, shows that total “household net worth” increased by $23.2 trillion (T as in trillion) in 12 months, from $118 trillion to $141 trillion. The total personal income was $20.4 trillion, the 12 month GDP was about $21 trillion, and the federal government in 2019 spent $4.5 trillion. The Biden Build Back Better plan calls for spending $350,000 billion per year for 10 years. Spending $3.5 trillion over 10 years would equal the amount of 2 months of wealth expansion. – Get that? 2 months of wealth expansion is more than 10 years of the Build Back Better plan over 10 years! What is our God? If it collapses it means severe disturbance, and if it goes on it means exacerbated inequality, hardship, and poverty. Poor us. We are mentally unprepared for this mess. (I write a blog, Economics Without Greed, Part Two) — Socialism would not allow this, to state the obvious.

      1. Hi Benl8. Your data is spot on. When you look at the WILSHIRE 5000 index, it is like a jet fighter taking off (that is the market cap of 97% of listed US shares) with no enduring pandemic air pockets. My next post will be titled CENTRAL BANKERS BOTTLE IT and it will argue that the reason they did so was not uncertainty but a financial bubble too big to fail. The growth in the US economy is driven not by investment, but by Personal Consumption Expenditures which is influenced by the growth in fictitious capital. I will provide a number of graphs including one which measures compensation against outlays which is useful because the growing disparity between the two is probably due to this leaching effect. theplanningmotive.com

      2. “The growth in the US economy is driven not by investment, but by Personal Consumption Expenditures which is influenced by the growth in fictitious capital.”

        That’s exactly what the bourgeois political economists claim– that growth is driven by consumption. This is nothing but the supply and demand theory all dressed up with nowhere to grow.

        If profitability drives the economy, as Michael and ucanbepolitical claim, then the real question is what is the profitability of the economy, and what is the ration of the profitability to accumulation, rates of accumulation and to the rate of growth.

        Arguments that depend on fictitious capital to explain “growth” or the persistence of capitalism are themselves fictitious, and amount to nothing more than an explanation, not an analysis. What needs to be examined here is the co-incidence of diminished rates of growth with diminished rates of profit with the growing shifting of wealth to the upper end of the social spectrum.

  3. The author should not have written an article based on stupid poverty norms of the banks. The article should have been dedicated to the criticism of this poverty criterion.

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