Income distribution may be related to fundamentals affecting economic growth and to labor market policies. Noting that inequality is affected by unemployment. This paper presents a model in which labor market policies affect unemployment which in turn affects inequality. The model also includes the effects of changes in per capita income on inequality through the accumulation of physical capital and technological know–how. When a resulting reduced–form relationship is estimated, its explanatory power is surprisingly high: on average, it explains about three quarters of the variation in inequality measures for the OECD countries, and Granger Causality tests confirm the model’s predictions.

Labour market institutions, including collective bargaining, the regulation of employment contracts and social protection policies, are instrumental for improving the well-being of workers, their families and society. In many countries, these instituti

Income distribution may be related to fundamentals affecting economic growth and to labor market policies. Noting that inequality is affected by unemployment. This paper presents a model in which labor market policies affect unemployment which in turn affects inequality. The model also includes the effects of changes in per capita income on inequality through the accumulation of physical capital and technological know-how. When a resulting reduced-form relationship is estimated, its explanatory power is surprisingly high: on average, it explains about three quarters of the variation in inequality measures for the OECD countries, and Granger Causality tests confirm the model`s predictions.

This paper tries to analyze whether pursuing economic growth and setting up labor market policies affect inequality. Therefore a simple testable model along the lines of the Kuznets and Neoclassical literature is fit to the data. The explanatory power of the regressions is high. On average the model explains about three quarters of the variation in inequality measures for the OECD countries. The theoretical ignorance about the sources of inequality translates into sharp disagreements in evaluating policy options. The results here indicate that inequality is negatively affected by factors related to the engines of economic growth: the accumulation of physical capital and technological know-how. As for aggregate investment in physical capital and inequality in the OECD countries, the results in this paper reconcile with earlier findings on this topic. However the relation between R&D and inequality had not been tested yet.The gains for the upper part of the distribution from investments in capital outweigh the losses at the bottom quintile significantly. Moreover, the impact of accumulating either kind of capital differs: investment in physical capital has a larger negative impact on the bottom part than investment in knowledge, and the income gains of accumulating technological know-how are smaller for the richest quintile compared to the gains of investment in physical capital. Investment in R&D thus seems the least harmful for inequality: accumulating technological know-how widens the gap between rich and poor less serious than accumulating physical capital. Changes in the tax-wedge turn out to be a significant instrument for lowering inequality: it increases the income share at the bottom part of the distribution at the cost of a lower income share higher up the distribution. The effect of changes in the labor force growth could not be estimated precisely, but higher labor force growth seems to widen the gap between the top and bottom quintile, via a decrease in the income at the lower and an increase at the top part of the distribution. The impact of active labor market policies is significant and effective to reduce inequality. The reduction in the income share at the top part of the distribution due to this type of policy (presumably financed by redistributive taxes) can be ignored compared to the gains at the bottom part of the distribution. As opposed to the active labor market policies, passive labor market policies, however, have only a small impact which could not be estimated precisely. As for the Gini-coefficient this kind of labor market policy moreover is rather a source of increases in inequality. However, the sum of the labor market policy and the tax wedge effects seems not offset the effects of investment in physical capital and knowledge. The causality tests confirm the causal relation in this model as well as the causal direction implied in the political economy literature, but rejects the causality suggested in the consumption theory.

Abstract: This paper presents a selective overview of the literature on modeling labor market policies in developing countries. It considers welfare economics, theoretical models, and empirical evidence to highlight the three general features needed in future research on labor market policy in developing countries. The author identifies desirable research components (welfare economics, theoretical modeling, and empirical modeling) and pitfalls in the literature (inappropriate use of productivity, reliance on wrong kinds of empirical studies, lack of cost-benefit analysis, attention to only a subset of the goods and bads, and fallacy of composition). The paper concludes with suggested topics and methods for future research. The author states that sound labor market policy requires sound labor market models. The paper makes a case for developing policy based on explicit evaluation criteria, specific theoretical models, and comprehensive empirical evidence.

"More and better jobs" is the underlying theme of this insightful new book. David Levine analyzes the current labor market in the U.S. and concludes that social policy must change to cope with the realities of the new economy. Although market forces are now moving U.S. enterprise toward high-skill and flexible workplaces, there is a shortage of workers with adequate skills in problem solving and teamwork. To combat this problem, the author presents an ambitious agenda of lifelong learning that will enable American workers to take advantage of the opportunities afforded by the new economic realities. Levine's analysis recommends specific government policies to encourage early childhood education, to improve schools, to help parents finance college, and to help students make the transition from school to work. He also discusses policies that will improve the regulation of workplaces. The book concludes with policy recommendations for individuals changing jobs, as well as for the unemployed, the disabled, and the poor.

This clear, accessible volume provides a comprehensive overview of the ongoing debate over the determining factors of and key influences on employment growth and labor market training, education, and related policies in the United States. Drawing on the work of distinguished labor economists, the chapters tackle questions posed by job and skill demands in the "new high-tech economy" and explore sources of employment growth; productivity growth and its implications for future employment; government mandates, labor costs, and employment; and labor force demographics, income inequality, and returns to human capital. These topics are central concerns for government, which must judge every prospective policy proposal by its effects on employment growth. Washington keeps at least one eye firmly on the jobs picture, and public officials at every level are constantly aware of the issues surrounding American job security. The jobs issue reaches beyond this focus on the unemployment rate and on total employment, including the rate at which employment is seen as growing, the growth of real wages, the security of employment, returns to human capital, uncertainty about the education and training best suited for a world of rapidly changing economic conditions, and the distribution of the gains from growth across economic classes and population groups.