Growing Income Inequalities in Advanced Countries (original) (raw)

2000, SSRN Electronic Journal

In this paper, we survey the literature that studies the issue of growing inequalities in advanced countries (the North). We firstly unveil the main facts concerning widening inequality in the North and we underlie the differences between countries and groups of countries. We put forward the concomitance of the rise in inequality with three key developments that are the three major explanations given to growing inequality: globalization, skill biased technological progress and institutional changes. We finally expose the mechanisms behind each explanation and examine the results of the empirical works that attempt to appraise their respective impacts. The overall diagnosis is that the three explanations are valid but (i) their weight may substantially differ across countries and sectors, and (ii) they interact in the determination of inequality. JEL Classification: E24, E25, F1, J2, O3 * We wish to thank the French Research national Agency (ANR) for its financial support. † Contact details: Nathalie.Chusseau@univ-lille1.fr ♯ Contact details: dm@plan.be exogenous; (iii) technological differences between the North and the South and international outsourcing were overlooked; (iv) technical change, NST and labour market institutions were considered as independent from each other, and (v) certain stylised facts such as labour market polarization remained unexplained. Finally, since the mid 1990s, a series of new estimates have questioned the early diagnosis. Consequently, a new wave of empirical and theoretical approaches (i) have modelled and estimated the operating mechanisms of skill biased technological change, North-South trade and institutional changes, and (ii) have considered possible interactions between labour supply and technological change, institutions and technological change and trade and technology. This chapter presents a review of both theoretical and empirical literature on explaining growing inequalities in advanced countries. Section 2 explores a number of stylised facts. Section 3 depicts the Demand-Supply-Institution analytical framework, and Section 4 examines the three main explanations based on technological bias and North-South trade (demand sided explanations), and on the changes in labour market institutions. Finally, Section 5 exposes the alternative mechanisms developed in the new theoretical and empirical literature. We conclude in Section 6.