ECONOMIC policymakers around the world have struggled to stem rising inequality – a trend that has impeded economic growth, fuelled populist electoral victories, and jeopardised liberal democracy. It was thus widely and understandably feared that unskilled workers would suffer deeply as a result of the Covid-19 crisis and, more recently, the energy-price shock that followed Russia’s full-scale invasion of Ukraine. But, in both cases, the impact has been relatively benign.

After the initial pandemic shock in early 2020, economies and job growth rebounded strongly. Thanks to the robust recovery, together with far-reaching government support programmes, income inequality fell by most measures, especially in the United States, owing to substantial cash transfers to households, but also throughout Europe, where government income support was more moderate.

Before the pandemic recovery was complete, however, another shock arrived: Russia launched its full-scale invasion of Ukraine, and energy prices spiked. But not all energy shocks are created equal. Whereas in the past they were driven largely by crude oil prices – which peaked immediately after the invasion, but are now in line with the pre-war average – today, natural gas is the main problem. While natural-gas prices have fallen from their post-invasion peak in the summer of 2022, they remain two to three times higher than the pre-2021 average.