Is unemployment a determinant of income inequality?: new evidence at the global level using cointegration techniques

Abstract

Income inequality varies widely across world regions, preventing people with the least income and wealth from reaching their potential in terms of education and invention. There is also less entrepreneurship and less employment. We add to the scarce literature on the relationship between unemployment and income inequality, by identifying the effect of unemployment on the latter using panel data with 92 countries grouped by income level in the period 1980-2016. Using cointegration techniques, we find evidence of short- and long-term equilibrium between the variables at the global level. On the other hand, we confirm the strength of the cointegration vector in certain upper-middle and lower-middle income countries and one-way causation in high-income countries from unemployment to income inequality and two-way causation in low-income countries between the two. study variables. We reaffirm the quantitative, qualitative and strategic importance of unemployment in income inequality, therefore, it should be included more often in future analyzes to reduce the global inequality gap.