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Growing income inequalities in advanced countries

Working Paper 2012-260

Abstract

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.

Authors: Nathalie Chusseau, Michel Dumont.

Keywords: Income Inequality, Globalization, Skill Based Technological Change, Labour Market Institutions.
JEL: E24, E25, F1, J2, O3.