Advanced Search
MyIDEAS: Login to save this paper or follow this series

Inequality and Employment Sensitivities to the Falling Labour Share

Contents:

Author Info

  • Marika Karanassou

    ()
    (Queen Mary, University of London and IZA)

  • Hector Sala

    ()
    (Universitat Aut�noma de Barcelona and IZA)

Abstract

This paper aims at identifying the labour share (wage-productivity gap) as a major factor in the evolution of inequality and employment. To this end, we use annual data for the US, UK and Sweden over the past forty years and estimate country-specific systems of labour demand and Gini coefficient equations. Further to the statistical significance of our models, we validate their economic significance through counterfactual simulations. In particular, we evaluate the contributions of the labour share to the trajectories of inequality and employment during specific time intervals in the post-1990 years. We find that during the nineties the cost of a one percent increase in employment was in the range of 0.7%-0.9% higher inequality in all three countries. However, in the 2000s, whereas the inequality-employment sensitivity ratio slightly fell in the US, it exceeded unity in the countries on the other side of the Atlantic. It obtained its highest value in the UK, where a 1% growth in employment was achieved at the expense of 1.3% worsening in income inequality. In the light of the significant influence of the time-varying labour share on the inequality and employment time paths documented in our sample, the evolution of the wage-productivity gap deserves the attention of policy makers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econ.qmul.ac.uk/papers/doc/wp680.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 680.

as in new window
Length:
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:qmw:qmwecw:wp680

Contact details of provider:
Postal: London E1 4NS
Phone: +44 (0) 20 7882 5096
Fax: +44 (0) 20 8983 3580
Web page: http://www.econ.qmul.ac.uk
More information through EDIRC

Related research

Keywords: Income inequality; Labour income share; Employment;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jo�l Hellier & Nathalie Chusseau, 2010. "Globalization and the Inequality-Unemployment Tradeoff," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 1028-1043, November.
  2. Marika Karanassou & Hector Sala, 2010. "The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment?," Working Papers 668, Queen Mary, University of London, School of Economics and Finance.
  3. Metcalf, Charles E, 1969. "The Size Distribution of Personal Income during the Business Cycle," American Economic Review, American Economic Association, vol. 59(4), pages 657-68, Part I Se.
  4. Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
  5. N. Gregory Mankiw, 2010. "Spreading the Wealth Around: Reflections Inspired by Joe the Plumber," NBER Working Papers 15846, National Bureau of Economic Research, Inc.
  6. Moriguchi, Chiaki, 2010. "Top wage incomes in Japan, 1951-2005," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 301-333, September.
  7. A Singh, 2001. "Income Inequality in Advanced Economies: A Critical Examination of the Trade and Technology Theories and an Alternative Perspective," ESRC Centre for Business Research - Working Papers wp219, ESRC Centre for Business Research.
  8. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000:19, Uppsala - Working Paper Series.
  9. Checchi, Daniele & García-Peñalosa, Cecilia, 2005. "Labour Market Institutions and the Personal Distribution of Income in the OECD," IZA Discussion Papers 1681, Institute for the Study of Labor (IZA).
  10. Nolan, Brian, 1987. "Cyclical Fluctuations in Factor Shares and the Size Distribution of Income," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 33(2), pages 193-210, June.
  11. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 23-43.
  12. Fabienne Llense, 2010. "French CEOs' Compensations: What is the Cost of a Mandatory Upper Limit?," CESifo Economic Studies, CESifo, vol. 56(2), pages 165-191, June.
  13. Markus Jäntti & Stephen Jenkins, 2010. "The impact of macroeconomic conditions on income inequality," Journal of Economic Inequality, Springer, vol. 8(2), pages 221-240, June.
  14. A. B. Atkinson, 2001. "A Critique of the Transatlantic Consensus on Rising Income Inequality," The World Economy, Wiley Blackwell, vol. 24(4), pages 433-452, 04.
  15. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1001-1026.
  16. Bjorklund, Anders, 1991. " Unemployment and Income Distribution: Time-Series Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(3), pages 457-65.
  17. Engelbert Stockhammer, 2000. "Financialization and the Slowdown of Accumulation," Working Papers geewp14, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  18. Manning, Alan, 1993. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," Economic Journal, Royal Economic Society, vol. 103(416), pages 98-118, January.
  19. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2009. "Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data," Working Papers 09-26, Center for Economic Studies, U.S. Census Bureau.
  20. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
  21. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
  22. 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 604-09, November.
  23. William Milberg & Deborah Winkler, 2009. "Globalization, Offshoring and Economic Insecurity in Industrialized Countries," Working Papers 87, United Nations, Department of Economics and Social Affairs.
  24. H. Naci Mocan, 1999. "Structural Unemployment, Cyclical Unemployment, and Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 122-134, February.
  25. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-91, January.
  26. Luci Ellis & Kathryn Smith, 2007. "The global upward trend in the profit share," BIS Working Papers 231, Bank for International Settlements.
  27. Hatton, Timothy J., 2002. "Can Productivity Growth Explain NAIRU? Long-run Evidence from Britain, 1871-1999," CEPR Discussion Papers 3424, C.E.P.R. Discussion Papers.
  28. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  29. Oded Galor, 2011. "Inequality, Human Capital Formation and the Process of Development," NBER Working Papers 17058, National Bureau of Economic Research, Inc.
  30. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  31. T. Paul Schultz, 1969. "Secular Trends and Cyclical Behavior of Income Distribution in the United States: 1944-1965," NBER Chapters, in: Six Papers on the Size Distribution of Wealth and Income, pages 75-106 National Bureau of Economic Research, Inc.
  32. François Bourguignon & Christian Morrisson, 2001. "Inequality among World Citizens : 1820-1992," DELTA Working Papers 2001-18, DELTA (Ecole normale supérieure).
  33. Thurow, Lester C, 1970. "Analyzing the American Income Distribution," American Economic Review, American Economic Association, vol. 60(2), pages 261-69, May.
  34. Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 443-456, March.
  35. Cysne, Rubens Penha, 2004. "On the positive correlation between income inequality and unemployment," Economics Working Papers (Ensaios Economicos da EPGE) 561, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  36. William Milberg & Deborah Winkler, 2010. "Financialisation and the dynamics of offshoring in the USA," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 275-293, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marika Karanassou & Hector Sala, 2012. "Distributional Consequences of Capital Accumulation, Globalisation and Financialisation in the US," Working Papers 695, Queen Mary, University of London, School of Economics and Finance.
  2. John Hatgioannides & Marika Karanassou & Hector Sala, 2013. "Eurozone: The Untold Economics," Working Papers 699, Queen Mary, University of London, School of Economics and Finance.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:qmw:qmwecw:wp680. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nick Vriend).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.