Earnings inequality and the business cycle

Gadi Barlevy, Daniel Tsiddon*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Economists have long viewed recessions as contributing to increasing inequality. However, this conclusion is largely based on data from a period in which inequality was increasing over time. This paper examines the connection between long-run trends and cyclical variation in earnings inequality. We develop a model in which cyclical and trend inequality are related, and find that in our model, recessions tend to amplify long-run trends, i.e. they involve more rapidly increasing inequality when long-run inequality is increasing, and more rapidly decreasing inequality when long-run inequality is decreasing. In support of this prediction, we present evidence that during the first half of the 20th century, when earnings inequality was generally declining, earnings disparities indeed appeared to fall more rapidly in downturns, at least among workers at the top of the earnings distribution.

Original languageEnglish
Pages (from-to)55-89
Number of pages35
JournalEuropean Economic Review
Issue number1
StatePublished - Jan 2006


  • Great Depression
  • Human capital
  • Inequality
  • Stochastic Ben-Porath model


Dive into the research topics of 'Earnings inequality and the business cycle'. Together they form a unique fingerprint.

Cite this