【Discussion Paper Series by ESRC-JSPS Research Project on Japan and the UK】
The COVID-19 Shock and Income Inequality: A Panel Data Analysis of Permanent and Transitory Effects in Japan and the U.K.
This study examines the impact of the COVID-19 shock on labor market risk in Japan and the U.K. using panel data, focusing on whether the changes in income inequality are permanent or temporary. This analysis produced three key findings. First, a negative and significant covariance between the random effect and random growth parameter indicates lower initial earnings are associated with higher earnings growth rates. Second, the transitory component of inequality increases in 2021 in some cases, supporting the validity of income maintenance policies for affected households. Third, as cohorts age, the transitory component of inequality grows, necessitating temporary public support policies to address gaps in older adult income systems caused by temporary income shocks.
