ON THE POSITIVE CORRELATION BETWEEN INCOME INEQUALITY AND UNEMPLOYMENT

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.