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Equilibrium unemployment-inequality correlation

  • Cysne, Rubens Penha
  • Turchick, David

A vast empirical literature implies that increases in unemployment have an aggravating impact on income inequality, whence international and intertemporal inequality comparisons might be sometimes biased. We show how job-search models can be useful in better understanding this fact. In fact, in the classic Burdett and Mortensen (1998) model, as well as in one of its many possible extensions (Bontemps et al., 2000), search frictions are a force pushing the unemployment-inequality correlation in that direction: provided that the unemployment rate is no larger than 15%, a positive correlation between unemployment and inequality unequivocally emerges.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 2 ()
Pages: 454-469

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:454-469
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. 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.
  2. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  3. Mortensen, Dale T & Pissarides, Christopher A, 1999. "Unemployment Responses to 'Skill-Biased' Technology Shocks: The Role of Labour Market Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 242-65, April.
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  5. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
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  9. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  10. Blejer, Mario I & Guerrero, Isabel, 1990. "The Impact of Macroeconomic Policies on Income Distribution: An Empirical Study of the Philippines," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 414-23, August.
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  15. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
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  18. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
  19. Eliana Cardoso & Andre Urani & Andre Urani, 1995. "Inflation and Unemployment as Determinants of Inequality in Brazil: The 1980s," NBER Chapters, in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 151-176 National Bureau of Economic Research, Inc.
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  21. 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.
  22. Kenneth Burdett & Ricardo Lagos & Randall Wright, 2003. "An On-the-Job Search Model of Crime, Inequality, and Unemployment," PIER Working Paper Archive 03-030, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  23. Castaneda, Ana & Diaz-Gimenez, Javier & Rios-Rull, Jose-Victor, 1998. "Exploring the income distribution business cycle dynamics," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 93-130, June.
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