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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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  8. 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.
  9. 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.
  10. Bontemps, C. & Robin, J.M. & van den Berg, G.J., 1998. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Non-Parametric Estimation," Papers 98-07, Centre for Labour Market and Social Research, Danmark-.
  11. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Working Papers 150201, Institut National de la Recherche Agronomique, France.
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  22. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
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