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Towards a measure of income inequality freed from the volatility caused by variations in the rate of unemployment

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  • Cysne, Rubens Penha

Abstract

By mixing together inequalities based on cyclical variables, such as unemployment, and on structural variables, such as education, usual measurements of income inequality add objects of a di§erent economic nature. Since jobs are not acquired or lost as fast as education or skills, this aggreagation leads to a loss of relavant economic information. Here I propose a di§erent procedure for the calculation of inequality. The procedure uses economic theory to construct an inequality measure of a long-run character, the calculation of which can be performed, though, with just one set of cross-sectional observations. Technically, the procedure is based on the uniqueness of the invariant distribution of wage o§ers in a job-search model. Workers should be pre-grouped by the distribution of wage o§ers they see, and only between-group inequalities should be considered. This construction incorporates the fact that the average wages of all workers in the same group tend to be equalized by the continuous turnover in the job market.

Suggested Citation

  • 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, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:epgewp:560
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    References listed on IDEAS

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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. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    3. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
    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. 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.
    6. 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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