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Mind the wage gap: an empirical analysis of the impact of labour income inequality on economic growth

Author

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  • Rebecca Gramiscelli Hasparyk
  • Rafael Saulo Marques Ribeiro
  • Ana Bottega

Abstract

This work aims to contribute to recent literature that empirically analyses the relationship between inequality in the labour market and economic growth. To do so, we measured wage inequality by using the ratio between the wages of the 10% of workers with the highest earnings and the wages of the bottom 40% of workers with the lowest earnings (10/40 ratio), capturing the wage gap between the two extreme classes of wage earners. We also used a panel data modelling approach, assuming that the main relationship studied is endogenous, and a sample with 189 countries in the period between 2004 and 2017. Our findings indicate a negative effect of wage inequality on economic growth.

Suggested Citation

  • Rebecca Gramiscelli Hasparyk & Rafael Saulo Marques Ribeiro & Ana Bottega, 2023. "Mind the wage gap: an empirical analysis of the impact of labour income inequality on economic growth," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(1), pages 10-30, January.
    • Handle: RePEc:elg:rokejn:v:11:y:2023:i:1:p10-30
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    More about this item

    Keywords

    wage inequality; growth; demand-led models; dynamic panel data; system GMM;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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