The effect of service sector growth on income inequality and what is the solution of it in OECD countries
- The effect of service sector growth on income inequality and what is the solution of it in OECD countries
- HWANG, Jee Hui
- Issue Date
- KDI School of public policy and management
- This paper intends to study the relationship between service sector's growth and income inequality for 34 OECD countries during the period from 1974 to 2011. From our analysis, we find evidence that the growth in service sector in terms of employment is
negatively related to income equality. However, we also find that the growth in service sector
in terms of value added is positively related to income equality. Also, we find that both the
labor productivity of service sector compared to manufacturing sector and labor
compensation of service sector compared to manufacturing sector are positively related to income equality. Overall, our analysis suggests that the advance in service sector is not
necessarily related to deterioration in income inequality. If the labor productivity and
compensation in service sector are high enough, the growth in service sector may lead to
more equal distribution of income. We can confirm the above findings for both more marketoriented economies (liberal market economies) and less market-oriented economies
(coordinated market economies).
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