Explaining Income Inequalities: A Cross Sectional-Study of OECD Countries

42 Pages Posted: 3 Dec 2018

Date Written: July 12, 2018


Rising income inequality has become a global trend. It is already well established that pronounced income inequalities not only constrain future growth potential but are also accompanied by unequal opportunities that have inimical social consequences. Income inequalities exhibit considerable variations across OECD countries, and growth performance records clearly demonstrate that there does not have to be a trade-off between growth and equality. Understanding the drivers behind growing income inequalities is essential to determining an appropriate inclusive development strategy. In this study, the “Partial Least Square” method is used to predict the Gini-coefficient of income inequality, using cross-sectional data from 30 OECD countries. Factors identified as explaining cross-country variations in inequalities include the ‘Palma’ ratio, working poor, NEET youth, child poverty, and public expenditure on active employment programs. The evidence suggests that social and labor market policies can be effective in tackling poverty and inequality.

Keywords: Income Inequality, OECD Countries, NEET Youth, Partial Least Square, Precarious Employment, Social Determinants, Inter-Generational Upward Mobility, Sen’s Capability Concept, Palma Ratio, Labor Market Reforms

JEL Classification: A1, H50, O1, O4, O5

Suggested Citation

Bhardwaj, Ramesh, Explaining Income Inequalities: A Cross Sectional-Study of OECD Countries (July 12, 2018). Available at SSRN: https://ssrn.com/abstract=3212518 or http://dx.doi.org/10.2139/ssrn.3212518

Ramesh Bhardwaj (Contact Author)

George Brown College ( email )


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