With over 360,000 deaths from COVID-19, the United States was supposed to be among the places best prepared to handle a health crisis. It has since instead proven, at least among comparable countries, one of the worst in handling the crisis.
Looking past the developed world yields an even more sobering picture. Even countries without solid testing infrastructure--India, Brazil, Argentina--have seen their case counts explode. Many of these nations lack more than healthcare: India's lockdown trapped millions of migrant workers thousands of miles away from home, and food prices in Yemen have spiked after lockdowns.
One thing those who suffered most from the pandemic have in common is clear: they all have substantial informal economies, networks of businesses and laborers operating in a gray zone overlooked by government regulations and protections. Far from being a distinct challenge, heavy reliance on the informal sector has exacerbated the pandemic, hamstrung governments' ability to effectively respond, and set up a myriad of future policy challenges. Workers left off official payrolls and statistics make it difficult to enforce public health orders or target welfare programs, and missing tax revenue from unregistered businesses strains governments' abilities to finance new stimulus. Now, more than ever, governments need to tackle the weaknesses at the heart of the informal economy as they move into a post-pandemic world.
Before the Crisis: The Welfare State in Emerging Economies Prior to the pandemic, most informal workers were not eligible for government benefits. Many migrant laborers and gray-market factory workers are not protected by unions or entitled to unemployment insurance, nor can they report poor working conditions to local authorities for fear of being exposed for under-the-table work. Lest we think this is an exception, the UN International Labor Organization estimates that 2 billion people worldwide work informally, or more than 60 percent of the global workforce. Among these, most work in cottage industries or agriculture, sectors especially prone to underregulation. Fewer, though still many, work in export industries like textiles.
To some extent, these gaps exist by necessity. The countries with the highest share of their workers employed informally are the least able to afford an expansive welfare state. The World Bank finds that in these countries, less than three percent of the population is eligible for unemployment benefits. Despite the well-documented benefits of the welfare state in developed economies, such as higher social mobility, less extreme poverty, and, importantly in the current crisis, better population health, the simple truth is that the generous coffers and expansive borrowing capacities that allow rich countries to maintain stable safety nets is a pipe dream elsewhere. When emerging economies take on new debt, they often pay exorbitant interest rates thanks to a very real risk of default. From Argentina to Lebanon, history is littered with examples of governments that overspent and left creditors empty-handed. Compare that to the United States, where the dollar's status as the world's reserve currency and innovative monetary policy keep interest payments at a minimum, and debt-to-GDP ratios above 100...