Industrial employment and income inequality: Evidence from panel data

Over the last decades, the Western world has seen millions of relatively well-paid manufacturing jobs disappear. Some have shifted to low-income countries, while other have been permanently lost due the introduction of labor-saving technologies. Concurrently, many comparatively low-wage jobs have been created in services, for example in fast food and retailing. This paper uses a dynamic panel of 27 high and middle income countries from 1991 to 2014 to estimate the effects of declining industrial employment shares on income inequality. The analysis shows that industrial employment is significantly negatively associated with income inequality. Additionally, the results suggest that it is the middle-earners that have borne the largest burden in terms of inequality increases.