Crises Increase Inequality in the US

One of the central goals of the G20 is to improve the resilience of its members against the negative effects of economic crises. A study conducted by the Mannheim-based Centre for European Economic Research (ZEW), in collaboration with the Bertelsmann Stiftung, compared how eight OECD countries have coped with crisis-related slumps in exports since the 1970s. While Germany, Japan and Australia proved to be particularly robust countries which cope with export-sector crises comparatively well, France and Italy are particularly vulnerable in this respect. The United States are a case apart as US GDP tends to stabilise fairly quickly, while inequality increases in the aftermath of a crisis.

Japan and Australia proved to be most resilient. Since the oil crises of the 1970s, both countries have repeatedly been successful in overcoming the negative effects of global trade slumps within a short space of time. Japan and Australia were able to avoid both a significant increase in unemployment and a sharp decline in growth. At the same time, neither of these countries have experienced an increase in inequality and poverty after a crisis.

France and Italy on the other hand have so far demonstrated a particularly low level of resilience to crises. In these countries, export slumps typically leave long-lasting traces in the form of increased poverty and higher unemployment rates. “In the case of France, it has once again become clear that the new president has a lot of reform work to do,” emphasises Professor Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance” and leader of the study.

"The US does not serve as model for European states"

Germany, by contrast, shows a high level of resilience. Although crises in earlier decades have led to a significant decline in growth in the Federal Republic, the recent financial crisis has not had long-lasting negative effects on Germany’s economic performance. “Due to its high export quota, Germany is vulnerable to sudden global trade slumps. The country has, however, become adaptable enough to process these shocks quickly,” explains Heinemann.

The United States show an exceptional crisis management pattern. Even though the country is quick to regain stable growth and employment rates following a slump in exports, an increase in inequality remains visible for years after the crisis. “The crisis resilience strategy of the US does not serve as an appropriate model for European states. The little attention the losers of a crisis receive in the US is unlikely to find acceptance in Europe,” says Heinemann.

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49(0)621/1235-149, E-mail friedrich.heinemann@zew.de