IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Inequality and Employment Sensitivities to the Falling Labour Share

  • Marika Karanassou

    ()

    (Queen Mary, University of London and IZA)

  • Hector Sala

    ()

    (Universitat Aut�noma de Barcelona and IZA)

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.

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

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

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. 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.
  2. Marika Karanassou & Hector Sala, 2010. "The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment?," Working Papers wpdea1006, Department of Applied Economics at Universitat Autonoma of Barcelona.
  3. 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.
  4. Chiaki Moriguchi, 2008. "Top Wage Incomes in Japan, 1951-2005," NBER Working Papers 14537, National Bureau of Economic Research, Inc.
  5. 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).
  6. Oded Galor, 2011. "Inequality, Human Capital Formation and the Process of Development," Working Papers 2011-7, Brown University, Department of Economics.
  7. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
  8. François Bourguignon & Christian Morrisson, 2001. "Inequality among World Citizens : 1820-1992," DELTA Working Papers 2001-18, DELTA (Ecole normale supérieure).
  9. Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers 9905, Centro de Estudios Monetarios Y Financieros-.
  10. 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.
  11. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2012. "Recent trends in top income shares in the USA: reconciling estimates from March CPS and IRS tax return data," LSE Research Online Documents on Economics 41587, London School of Economics and Political Science, LSE Library.
  12. 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.
  13. 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.
  14. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000-19, Uppsala - Working Paper Series.
  15. William Milberg & Deborah Winkler, 2009. "Globalization, Offshoring and Economic Insecurity in Industrialized Countries," Working Papers 87, United Nations, Department of Economics and Social Affairs.
  16. Luci Ellis & Kathryn Smith, 2007. "The global upward trend in the profit share," BIS Working Papers 231, Bank for International Settlements.
  17. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 719-741, September.
  18. 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.
  19. Fabienne Llense, 2008. "French CEO Compensations: What is the Cost of a Mandatory Upper Limit?," CESifo Working Paper Series 2402, CESifo Group Munich.
  20. 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.
  21. Bjorklund, Anders, 1991. " Unemployment and Income Distribution: Time-Series Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(3), pages 457-65.
  22. N. Gregory Mankiw, 2010. "Spreading the Wealth Around: Reflections Inspired by Joe the Plumber," NBER Working Papers 15846, National Bureau of Economic Research, Inc.
  23. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  24. Timothy J. Hatton, 2007. "Can Productivity Growth Explain the NAIRU? Long-Run Evidence from Britain, 1871-1999," Economica, London School of Economics and Political Science, vol. 74(295), pages 475-491, 08.
  25. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1001-1026, October.
  26. 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.
  27. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
  28. 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.
  29. 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.
  30. 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.
  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. Thurow, Lester C, 1970. "Analyzing the American Income Distribution," American Economic Review, American Economic Association, vol. 60(2), pages 261-69, May.
  33. 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.
  34. 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.
  35. 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.
  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)

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

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.