Jens Weidmann: Will Covid-19 increase economic inequality?

Opening speech by Dr Jens Weidmann, President of the Deutsche Bundesbank and Chair of the Board of Directors of the Bank for International Settlements, at the International Conference on Household Finance, virtual event, 29 April 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

1 Introduction

Ladies and gentlemen,

It is a great pleasure to welcome you to our conference today. I would have liked to deliver my speech to you all personally in Frankfurt, but the pandemic keeps throwing spanners in the works.

At least we are able to hold this conference virtually. Today and tomorrow, you will be discussing a broad range of issues related to household finance, with the heterogeneity of households and, in particular, the distribution of income and wealth, featuring prominently among them.

Using a metaphor created by Joseph Schumpeter, some economists have likened economic inequality to a hotel. As the labour economist Gary Fields put it: "The rooms at the top are luxurious, those in the middle are ordinary, and those in the basement are substandard. On any given night, the occupants of the hotel experience quite unequal accommodations. [-] The difference in the quality of the hotel rooms at each point in time is what we call inequality."

Importantly, it is also characteristic of a hotel that its occupants change. Social mobility means that people can later find themselves in rooms of a very different quality than before.

However, just as the hospitality industry has been hit hard by the coronavirus pandemic in the real world, Schumpeter's figurative hotel may not have escaped unscathed either. Indeed, some observers have already dubbed the COVID-19 recession "the most unequal in modern U.S. history".