On the Positive Correlation between Income Inequality and Unemployment

Rubens Cysne

The Review of Economics and Statistics, 2009, vol. 91, issue 1, 218-226

Abstract: Two papers published in this journal (Jantti, 1994, and Mocan, 1999), among others, find empirical evidence that "increases in structural unemployment have a substantial aggravating impact on income inequality." The main point of this work is to show that standard job-search models can help us understand this empirical regularity. As a byproduct of the analysis, the paper also provides a closed-form general expression that enables direct calculation of the Gini coefficient of wage-income inequality as a function of any arbitrary initial distribution of wage offers. Three numerical examples illustrate the results. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2009
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Working Paper: On the positive correlation between income inequality and unemployment (2004)
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