Winds of Change and Policies: The Inequality-Employment Trade-Off in the OECD
University of Salerno Dipartimento di Scienze Economiche e Statistiche Working Paper No. 3.198
74 Pages Posted: 21 Feb 2010 Last revised: 21 Jun 2012
Date Written: March 3, 2008
Using a data-set of OECD countries from 1980 to 2004, we assess the cross-country evidence on the trade-off between wage inequality and employment performance by relying on Data Envelopment Analysis, a nonparametric technique usually employed in the analysis of productive efficiency. DEA allows for the simultaneous determination of inequality and employment and treats the potential trade-off between inequality and employment in a very flexible way. We attribute the variations in the rates of unemployment and non-employment to two components: the changes due to a variation in wage inequality along the inequality-employment trade-off and the changes in efficiency which simultaneously affect inequality and employment). We find that changes in efficiency are a fairly important component of total changes.
Keywords: Labour-Market Performance, Wage Inequality, DEA
JEL Classification: E24, P17, P52, C14
Suggested Citation: Suggested Citation