Inequality and Markets
Trends in inequality have been mostly driven by labor market developments, yet the driving forces of the recent decline in wage inequality are not fully understood. Transitions into and out of informality generate inequality in access to services like healthcare, pensions and unemployment insurance, but we know little about how these are determined and why.
The study of workers’ informality cannot be disentangled from the study of the distribution of firms. Markups and product market concentration are high in the region. Because business ownership is highly concentrated, rents in the goods markets likely contribute to the concentration of income at the top of the distribution. Firms may also contribute to high levels of income inequality. By reducing wages, firms’ markdowns in the labor market are a potential source of lower labor share and interpersonal inequality.
The third theme focuses on the relationship between markets (for labor, capital and goods) and inequality. It will first study the extent to which the labour market is a fundamental driver of earnings and income inequality, and then explore the relationship between firm size distribution and competition in different goods markets in order to understand wage dispersion and inequality of capital incomes.
- How is firm size distribution is related to personal income distribution? What are the determinants of firm size and growth?
- What are the implications of labor market turnover on inequality?
- To what extent have trade liberalizations impacted inequality in the labor market?
- Is there evidence that increased minimum wage reduces inequality?
- Could changes in market concentration help us understand the levels and dynamics of wage inequality?