Labour Market Performance, Income Inequality and Poverty in OECD countries

There have been concerns that employment-enhancing reforms along the lines of the 1994 OECD Jobs Strategy could inadvertently lead to increased income inequality and poverty. This paper focuses on the impact of institutions and redistributive policies on inequality and poverty with the view of assessing whether a trade-off between better labour market performance and equity has taken place in OECD countries, notably in the 1990s. During this period, reductions of unemployment have been associated with rising wage dispersion for workers in most OECD countries. Nevertheless, no clear general trend appears for total disposable income inequality and relative poverty among the total population. These developments suggest that gains from higher employment have in general offset the impact of rising wage dispersion. A preliminary econometric analysis for the period 1978- 2000 fails to detect any robust relationship between labour market institutions/policies and inequality as measured by the Gini coefficient. Please note that annexes are only available on the OECD Economics Department Website at: www.oecd.org/eco/Working_Papers.