Income Inequality and Employment Revisited: Can One Make Sense of Economic Policy?

This article discusses growing inequalities in the context of employment and labour market policies and how the latter can contribute to lowering inequalities. It discusses what is meant by income inequality, why it is remains important to focus on income inequality, which measures of income inequality are relevant and how we have arrived at growing income inequality. A last section reviews what can be done about growing inequality. The current situation is dominated by globalization, which has influenced the functioning and outcome of various aspects of the labour market. Greater attention to labour market institutions and greater coherence between economic and labour market policies is therefore necessary to stem growing inequality. Past examples of combining growth with equitable income distribution are often examples of restrained capitalism. Either social pacts or government bureaucrats and political elites provided the restraint. The current crisis and the public concern for improved income equality might engender renewed political will to make employment creation and income distribution important objectives for economic policy-making.