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On the Positive Correlation between Income Inequality and Unemployment

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  • Rubens Penha Cysne

    (Professor at the Graduate School of Economics of the Getulio Vargas Foundation)

Abstract

Two papers published in this journal (Jantti, 1994, and Mocan, 1999), among others, find empirical evidence that "increases in structural unemployment have a substantial aggravating impact on income inequality." The main point of this work is to show that standard job-search models can help us understand this empirical regularity. As a byproduct of the analysis, the paper also provides a closed-form general expression that enables direct calculation of the Gini coefficient of wage-income inequality as a function of any arbitrary initial distribution of wage offers. Three numerical examples illustrate the results. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Rubens Penha Cysne, 2009. "On the Positive Correlation between Income Inequality and Unemployment," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 218-226, February.
    • Handle: RePEc:tpr:restat:v:91:y:2009:i:1:p:218-226
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    References listed on IDEAS

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    1. Levine, Daniel B & Singer, Neil M, 1970. "The Mathematical Relation Between the Income Density Function and the Measurement of Income Inequality," Econometrica, Econometric Society, vol. 38(2), pages 324-330, March.
    2. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    3. Blinder, Alan S & Esaki, Howard Y, 1978. "Macroeconomic Activity and Income Distribution in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 604-609, November.
    4. Beach, Charles M, 1977. "Cyclical Sensitivity of Aggregate Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 59(1), pages 56-66, February.
    5. Nolan, Brian, 1986. "Unemployment and the Size Distribution of Income," Economica, London School of Economics and Political Science, vol. 53(212), pages 421-445, November.
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    Cited by:

    1. Cong Minh Huynh & Nam Hoai Tran, 2023. "Financial development, income inequality, and institutional quality: A multi-dimensional analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2242128-224, June.
    2. Cysne, Rubens Penha & Turchick, David, 2012. "Equilibrium unemployment-inequality correlation," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 454-469.
    3. Flôres Junior, Renato Galvão, 2004. "On the use (fulness) of CGE modelling in trade negotiations and policy," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 564, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Moreira, Humberto Ataíde & Araújo, Aloísio Pessoa de & Castro Filho, Luciano I. de, 2004. "Pure strategy equilibria of multidimensional and non-monotonic auctions," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 571, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    5. Regina Pleninger & Jakob de Haan & Jan‐Egbert Sturm, 2022. "The ‘Forgotten’ middle class: An analysis of the effects of globalisation," The World Economy, Wiley Blackwell, vol. 45(1), pages 76-110, January.
    6. Fernando de Holanda Barbosa, 2017. "Competitive Equilibrium Hyperinflation Under Rational Expectations," SpringerBriefs in Economics, in: Exploring the Mechanics of Chronic Inflation and Hyperinflation, chapter 0, pages 77-91, Springer.
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    8. Marika Karanassou & Hector Sala, 2012. "Inequality and Employment Sensitivities to the Falling Labour Share," The Economic and Social Review, Economic and Social Studies, vol. 43(3), pages 343-376.
    9. Cysne, Rubens Penha, 2004. "Towards a measure of income inequality freed from the volatility caused by variations in the rate of unemployment," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 560, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    10. Thomas Husted & David Nickerson, 2022. "Governors and electoral hazard in the allocation of federal disaster aid," Southern Economic Journal, John Wiley & Sons, vol. 89(2), pages 522-539, October.
    11. George Petrakos & Konstantinos Rontos & Chara Vavoura & Ioannis Vavouras, 2023. "The Impact of Recent Economic Crises on Income Inequality and the Risk of Poverty in Greece," Economies, MDPI, vol. 11(6), pages 1-23, June.
    12. Ogede Jimoh S., 2020. "Deconstructing the Impact of Entrepreneurship on Income Inequality in Sub-Saharan Africa Countries," Economics and Business, Sciendo, vol. 34(1), pages 273-284, February.
    13. Pizzo, Alessandra & Villena-Roldán, Benjamin, 2024. "Labor markets, wage Inequality, and hiring selection," MPRA Paper 120281, University Library of Munich, Germany.
    14. Athayde, Gustavo M. de & Flôres Junior, Renato Galvão, 2004. "Do higher moments really matter in portfolio choice?," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 574, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    15. Dolan, Paul & Peasgood, Tessa & White, Mathew, 2008. "Do we really know what makes us happy A review of the economic literature on the factors associated with subjective well-being," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 94-122, February.
    16. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    17. Bebonchu Atems & Grayden Shand, 2018. "An empirical analysis of the relationship between entrepreneurship and income inequality," Small Business Economics, Springer, vol. 51(4), pages 905-922, December.
    18. Beatriz Larraz & Jose M. Pavía & Marcos Herrera‐Gómez, 2021. "Spatial aggregation and resampling expansion of big surveys: An analysis of wage inequality," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(3), pages 957-981, June.
    19. Horowitz, Andrew W. & Flôres Junior, Renato Galvão, 2004. "Beyond indifferent players: on the existence of prisoners dilemmas in games with amicable and adversarial preferences," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 576, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    20. Ane-Mari Androniceanu & Irina Georgescu & Manuela Tvaronavičienė & Armenia Androniceanu, 2020. "Canonical Correlation Analysis and a New Composite Index on Digitalization and Labor Force in the Context of the Industrial Revolution 4.0," Sustainability, MDPI, vol. 12(17), pages 1-20, August.
    21. Barbara Dluhosch & Daniel Horgos & Klaus Zimmermann, 2014. "Social Choice and Social Unemployment-Income Cleavages: New Insights from Happiness Research," Journal of Happiness Studies, Springer, vol. 15(6), pages 1513-1537, December.

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