Unequal: The impact of the Covid-19 lockdown on the poor

Unequal: The impact of the Covid-19 lockdown on the poor

9 April 2020 by Trenton Elsley

How do we slow the spread of Covid-19 without shutting down the livelihoods of poor households?

South Africa went into lockdown at midnight 26 March 2020, a decision that built on a global consensus of what it takes to slow the rate of infection of Covid-19 in the population. The economics of the national lockdown are straight forward. An enormous amount of productive economic activity has halted. The effect on the economy will be enormous.

But do we understand the social and political consequences of a sustained decline in the livelihoods of the poor?

A respectable source estimates a 7% increase in the rate of extreme poverty for all households to 21% and as much as a 16% increase for households with an informal worker to 26%. It is the poor that are left most vulnerable.

What is the cost to the country when the survival strategies and networks of support for the poor collapse under an extended lockdown? What cost when the legitimacy of the Covid-19 lockdown disintegrates because people do not have access to sufficient food

We cannot starve the people to protect the people.

What are the main livelihood strategies available to poorer households?

The presence of a wage earner in a poor household is a great advantage, even if they earn a low wage. According to the Quarterly Labour Force Survey the employed numbered 16,4 million in the last quarter of 2019. The UIF Covid-19 Temporary Employee/Employer Relief Scheme (TERS) is intended to assist workers whose jobs are under threat by supporting companies to pay salaries of the jobs which they retain for three months. For low wage workers this is benchmarked at the level of existing industry minimums and the national minimum age. There is some relief for workers who lose their jobs through the usual UIF payments over four months. There is also a R500 tax rebate for workers earning below R6,500 per month linked to the Employment Tax Incentive scheme.

These interventions are welcome enough, though confined to the formally employed. It remains to be seen how these measures will cope with the magnitude of the contraction of the economy in the coming months. Any way you cut it, there will be a decline in wage income to working class households nationally.

Of the 16,5 million employed, about 3 million are classified as informal. This includes all persons in the informal sector, employees in the formal sector, and persons working in private households who are not entitled to basic benefits such as pension or medical aid contributions from their employer and who do not have a written contract of employment.

The 3 million workers on the periphery of the labour market are the least likely to benefit from a UIF scheme of any description and are at the greatest risk of losing the jobs.

The self-employed are hard hit by the lockdown. Apart from a reference to spaza shops, the early directives shut down all informal trade, even trade in food and basic necessities. Street food traders alone support an estimated 500,000 livelihoods nationally, and account for 40% of the informal township economy.

Here is further pressure on the livelihoods of poor households, and something which also impacts their ability to access food and basic necessities closer to home. Changes to the regulations announced on the 2 April stated that essential services now include:

“Grocery stores and wholesale produce markets, including spaza shops and informal food traders, with written permission from a municipal authority to operate being required in respect of informal food traders.”

Here is some relief, although the requirement of written permission from a municipal authority seems an unnecessary obstacle.

Unemployment stood at 6.7 million at the end of 2019. It is unpleasant to note that unemployment increased by almost 10% or 587,000 individuals over the last year. The lockdown is likely to accelerate this trend significantly.

In addition to the 6.7 million unemployed, a further 2,86 million people were classified as discouraged work seekers. This refers to those aged 15 to 65 years who want to work, but have given up looking for work. Under the expanded definition of unemployment, they are also classified as unemployed.

Here is a pool of about nine and a half million people in the labour force that must survive, but have no discernible income of their own.

It has long been understood that in South Africa, if you are able-bodied and of working age, but unemployed, there are no social security transfers for you outside of the child support grant, the value of which will be R445 per month per child as of April this year. So, you are dependent on extended networks of people who have jobs and people who draw social grants, self-employment and maybe a bit of hustling.

Then there are 12,7 million people in the labour force who are classified as not-economically-active, for reasons other than being too discouraged to look for work. This 12,7 million includes those who cannot be considered to be unemployed because they are full-time scholars and students, full-time homemakers, those who are retired, and those who are unable or unwilling to work. Again, the only real possibility for income support for the poor in this group is the child support grant. This group must rely on others that earn wage income or draw social grants or the self-employed.

So, even within the labour force, there are 31% more people unemployed or not economically active than there are employed people. This helps illustrate the extended network of people that are supported by wage workers, the self-employed and existing social grants. To be clear, poorer households are more likely to contain low wage earners, the self-employed in poor households will likewise be low earners and grants are set very low. The child support grant of R445 is lower than Statistics South Africa’s food poverty line of R547 in April 2018 prices.

We have twin concerns.

One concern is that we do not do enough to slow the spread of the Covid-19 virus and that our health system is overwhelmed by the number of patients presenting with serious symptoms. The other concern is that the survival strategies and networks of support for poor households collapse under an extended lockdown and they are unable to secure sufficient food, never mind other necessities.

What are the possibilities for intervening in a way that manages both of these dynamics?

I remind the reader that I am interested only in measures that can be seen to trickle up to ordinary, working class households directly, rather than relying on interventions directed at other stakeholders to trickle down. Broad economic stimulus packages, for instance, do not qualify, because their benefit is likely to be as unequal as our society and our economy are unequal. 

  1. Make a cash transfer to those people that fall outside of the system, in that they do not have a formal job and do not draw a social grant.

The Southern Africa Social Policy Research Institute estimates that if everyone who is not receiving a benefit were to be given R561 per month for three months (R561 is the food poverty line, in 2019 rands) then this would cost about R18,6 billion per month. Even so, bringing new people onto a register is a challenging prospect at the best of times. When the population is under lockdown to slow the spread of a virus, the task is absurdly difficult. 

  1. Top up existing social grants as a way of topping up the incomes of poorer households. This has the benefit of leveraging an existing system with good coverage across the country, and a system in which the poor are well represented.

The case for the efficiency and efficacy of topping up the child support grant in particular, is well articulated in an article in The Conversation, and estimates that a top up of R500 would cost 6.2 billion per month. The authors argue quite convincingly that topping up the child support grant targets poor households well.

“A top-up of R500 per month would reduce the national extreme poverty rate compared to pre-lockdown levels, while for those in informal-worker households the extreme poverty rate increases by just six percentage points, rather than 16 percentage points.” 

  1. Focus on food security and the provision of food to poor households.

The Institute for Poverty, Land and Agrarian Studies provides some excellent insight into food dynamics for the poor at this time and offers sensible ideas about measures that talk to food security in the national lockdown.

  1. Use cash rather than vouchers
  2. De-concentrate the food system spatially
  3. Urgent help for small-scale food producers and aggregation of small-scale producers’ output and get supermarkets to adjust their procurement systems
  4. Get the corporate sector to repurpose its infrastructure
  5. Procure from small-scale food producers
  6. Manage shopping expeditions
  7. Accept and work with the informal sector. 

Controlling the spread of a highly infectious virus while maintaining the production and distribution of basic goods and other essential services, in addition to providing support to firms and households under duress as a result of a lockdown of socio-economic activity, is a complex task that involves competing imperatives.

Even as we advocate for responding to the deep distress of poor households, we must develop complementary strategies for managing the spread of the virus. We must not lose sight of the fact that strict isolation works. We need to be having conversations about how we keep this out of nursing homes and away from dense populations, poor communities and multi-generational households. We need a national strategy. Delaying or letting up too early on social distancing means lives lost.

All of this means changing the economy. The change will be driven by government spending, but the costs must also be shared along value chains. We must get money to the poor in particular. We must train new health care workers. We must redirect industry to produce personal protective gear and other health equipment in the volumes that we require. We must narrow the digital divide as a matter of urgency. We must protect households from debt and destitution. We must distribute food where necessary. We must do everything we can to enable physical distancing, because this is the only way. DM/MC 

Trenton Elsley is Executive Director of the Labour Research Service and serves on the National Minimum Wage Commission.

Source: Defend Truth at https://www.dailymaverick.co.za/article/2020-04-09-unequal-the-impact-of-the-covid-19-lockdown-on-the-poor/

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