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Decomposing income inequality into factor income components evidence from selected G20 countries

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  • Rani, Uma.
  • Furrer, Marianne.

Abstract

Income inequality has been rising in a number of countries in recent years and has been a growing concern. The total income of high-income households has increased faster than that of low-income households in a number of countries. Similarly, the wage gap between the top 10 per cent and bottom 10 per cent of wage earners has also widened. This paper investigates the factors that have contributed to the level of inequality and its changes over time in 13 selected G20 countries in order to address this issue at the policy level. The results show that labour income is the most powerful factor contributing to inequality in all countries under analysis. Transfers and benefits are the most important factors contributing to reducing inequality, but these alone cannot address the issue of rising inequalities in countries where unemployment continues to be high, which requires intervention in the labour markets. Furthermore, the paper also analyses the factors that contributed to the rise in labour income inequality and the results show that employment status and education are important factors contributing to inequality in the majority of the countries, though age, sex and industry group are also contributing to inequality in some countries.

Suggested Citation

  • Rani, Uma. & Furrer, Marianne., 2016. "Decomposing income inequality into factor income components evidence from selected G20 countries," ILO Working Papers 994930893002676, International Labour Organization.
  • Handle: RePEc:ilo:ilowps:994930893002676
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    Citations

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    Cited by:

    1. Ilias Georgakopoulos, 2019. "Income and Wealth Inequality in Malta," International Journal of Social Science Studies, Redfame publishing, vol. 7(5), pages 58-71, September.
    2. Yingfeng Fang & Fen Zhang, 2021. "The Future Path To China’s Poverty Reduction—Dynamic Decomposition Analysis With The Evolution Of China’s Poverty Reduction Policies," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 158(2), pages 507-538, December.
    3. Uma Rani & Jaya Krishnakumar & Maurizio Bigotta, 2017. "Accounting for income inequality: empirical evidence from India," Indian Economic Review, Springer, vol. 52(1), pages 193-229, December.
    4. Bernhard Hammer & Michael Christl & Silvia De Poli, 2020. "Redistribution across Europe: How much and to whom?," Working Papers 593, ECINEQ, Society for the Study of Economic Inequality.
    5. Luca Giangregorio, 2024. "Welfare type and income inequality: an income source decomposition including in-kind benefits and cash-transfers entitlement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 367-403, April.
    6. Kashour, Mohammad, 2023. "A step towards a just transition in the EU: Conclusions of a regression-based energy inequality decomposition," Energy Policy, Elsevier, vol. 183(C).
    7. Caroline Krafft & Elizabeth E. Davis, 2021. "The Arab inequality puzzle: the role of income sources in Egypt and Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 13(1), pages 1-26, January.
    8. Uma Rani, 2017. "Minimum Wage Policies and Their Effects in Developing Countries: A Comparative Perspective," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 60(1), pages 33-55, March.
    9. Nelson R. Ramírez- Rondán & Marco E. Terrones & Diego Winkelried, 2020. "Equalizing growth: The case of Peru," Working Papers 176, Peruvian Economic Association.
    10. Nguyen, Hien & Doan, Tinh & Quang Tran, tuyen, 2017. "Contribution to income inequality by income source: A comparison across ethnic groups in Vietnam," MPRA Paper 88821, University Library of Munich, Germany, revised 18 Jan 2018.
    11. Muszyńska Joanna & Oczki Jarosław & Wędrowska Ewa, 2018. "Income Inequality in Poland and the United Kingdom. Decomposition of the Theil Index," Folia Oeconomica Stetinensia, Sciendo, vol. 18(1), pages 108-122, June.
    12. Hien Nguyen & Tinh Doan & Tuyen Quang Tran, 2020. "The effect of various income sources on income inequality: a comparison across ethnic groups in Vietnam," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(2), pages 813-834, February.
    13. Mohsen Ayyash & Siok Kun Sek, 2020. "Decomposing Inequality in Household Consumption Expenditure in Malaysia," Economies, MDPI, vol. 8(4), pages 1-15, October.
    14. Simona ILIE, 2020. "Income Inequalities in Romania in the Aftermath of the 2008 Economic Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 115-130, July.
    15. Rosa Abraham, 2019. "Informal Employment and the Structure of Wages in India: A Review of Trends," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(S1), pages 102-122, November.
    16. Hammer, Bernhard & Christl, Michael & De Poli, Silvia, 2023. "Public redistribution in Europe: Between generations or income groups?," The Journal of the Economics of Ageing, Elsevier, vol. 24(C).
    17. Tushar Agrawal & Ankush Agrawal, 2023. "Beyond Consumption Expenditure: Income Inequality and Its Sources in India," Progress in Development Studies, , vol. 23(1), pages 7-27, January.
    18. Pauline Corblet, 2022. "Returns to education and experience on the labor market : a matching perspective [Les rendements de l'éducation et de l'expérience sur le marché du travail : offre, demande et appariement]," SciencePo Working papers Main tel-03852824, HAL.
    19. Anton I. Votinov & Samvel S. Lazaryan & Vyacheslav N. Ovchinnikov, 2019. "Regression-Based Decomposition of Income Inequality Factors in Russia," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 5, pages 74-89, October.

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