Inequality and Financial Crises: Some Early Findings

Abstract

We employ the UTIP data set on the evolution of earnings inequality in manufacturing in the global economy to illuminate two questions. First, do regional patterns of similarity in the movement of large macroeconomic aggregates, such as real GDP, imply underlying similarities of industrial structure, so that knowledge of one national economy in a GDP cluster can reasonably be assumed to convey useful information about the others? We show that this is not generally the case. Particularly, regional comovement of GDP in Asia, which is very strong, masks deep dissimilarities in underlying employment structures -- and, we argue, a range of potential sources of transmissible financial crisis. Second, what are the consequences of crisis for inequality? We show that crises typically generate increases in inequality, but more so in less developed countries, and more so in regions that are more liberal in their policy regimes.