Recessions cause inequality
BIS 21 – Bank for International Settlements
“2021 Annual Economic Report,” Bank for International Settlements, June 2021, https://www.bis.org/publ/arpdf/ar2021e.pdf
Inequality and recessions
Recessions are particularly harmful for the most disadvantaged because unemployment tends to hit unskilled workers harder and for longer. The experience during the Covid-19 pandemic is a case in point: low-income earners were the first to be laid off (Graph II.6, left-hand panel) and often faced significant difficulties when trying to re-enter the labour market (centre panel).13 Even when successful, unskilled workers might be forced to accept jobs paying lower salaries and offering fewer advancement opportunities compared with their pre-recession jobs. The impact of weak economic activity on income inequality, while initially small, tends to grow over time (Graph II.6, right-hand panel). A stylised exercise illustrates this by tracing out the effect of an increase in unemployment, as typically experienced during recessions. Estimates point to an only slight increase in income inequality in the short run that then rises substantially over time.