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Equilibrium unemployment-inequality correlation

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  • Cysne, Rubens Penha
  • Turchick, David

Abstract

A vast empirical literature implies that increases in unemployment have an aggravating impact on income inequality, whence international and intertemporal inequality comparisons might be sometimes biased. We show how job-search models can be useful in better understanding this fact. In fact, in the classic Burdett and Mortensen (1998) model, as well as in one of its many possible extensions (Bontemps et al., 2000), search frictions are a force pushing the unemployment-inequality correlation in that direction: provided that the unemployment rate is no larger than 15%, a positive correlation between unemployment and inequality unequivocally emerges.

Suggested Citation

  • Cysne, Rubens Penha & Turchick, David, 2012. "Equilibrium unemployment-inequality correlation," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 454-469.
    • Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:454-469
    DOI: 10.1016/j.jmacro.2011.12.009
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    More about this item

    Keywords

    Unemployment; Income inequality; Gini coefficient; Job search;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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