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Do Affluent Countries Face an Incomes-Jobs Trade-Off?

Emory University

According to an influential view, in the United States pay for less skilledworkers is lowand government benefits are stingy, but this facilitates the creation of newjobs and encourages such individuals to take those jobs. Inmuch of WesternEurope, relative pay levels are higher for those at the bottom and benefits are more generous, but this is said to discourage job creation and job seeking. This article offers a comparative assessment of this trade-off viewbased on pooled timeseries cross-section analyses of 14 countries in the 1980s and 1990s. The findings suggest that greater pay equality and a higher replacement rate do reduce employment growth in lowproductivity, private-sector service industries and in the economy as a whole. However, these effects are relatively weak. The results point to a variety of viable options for countries wishing to maintain or move toward a desirable combination of jobs and equality.

Key Words: inequality • incomes • employment • comparative

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