Structural change, income distribution and unemployment related to Covid-19: An agent-based model

We study the distributional consequences of the Covid-19 pandemic within the framework of a stock-flow consistent agent-based model that captures some of the aspects of pandemic-related lockdowns. The model distinguishes between ‘essential’ and ‘non-essential’ industries, between jobs that can be done from home and jobs that must be carried out on site. We find that the pandemic leads to a significant increase in inequality, mostly driven by market concentration and firms raising mark-ups in the aftermath of the pandemic, contributing to higher prices and a rising profit share. Government-financed short-time working schemes and loan guarantees reduce the rise in firm liquidations and income inequality (the ‘Keynesian’ result). However, we also find that the absence of government policies leads to higher levels of productivity and GDP in the aftermath of the crisis, as it means that more of the less productive firms face liquidation during lockdowns (the ‘Schumpeterian’ result).