 Is there a Trade-off between Wage Inequality and Unemployment?Chapter 5 in Growing Income Inequalities, 2013, pp 147-171 from Palgrave Macmillan Abstract: Abstract Up to the early 1980s, unemployment had been lower in most European countries than in the United States. From that point onwards, however, the evolution of unemployment diverged considerably, with unemployment falling in the US, whereas Europe witnessed a dramatic rise in unemployment. Coincidentally, wage inequality surged in the US but increased less dramatically, stabilized or even decreased in most (continental) European countries (see Chapter 1). Some economists explained this dual observation by an inequality-unemployment trade-off (henceforth IUT). The basic IUT story is that both the US and Europe have experienced an increase in the demand for high-skilled workers (relative to low-skilled workers), e.g., due to globalization and/or technological change. In the US, where labour markets are competitive, the rise in demand has resulted in higher inequality (skill premium). On the other hand, more egalitarian institutions in the EU that prevented wage adjustment have prompted increasing unemployment of the low-skilled (Krugman, 1994a). Keywords: Minimum Wage; Wage Inequality; Relative Wage; Reservation Wage; Labour Market Institution (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-28330-6_6 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Palgrave Macmillan Books from Palgrave Macmillan |
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