Structural Changes in Household Income Inequality in Korea: A New Decomposition Including Labor Supply Changes

Abstract

This study estimates the relative contribution of each of the components of household income, including labor supply, to the observed changes in household income inequality between 1988 and 1999. For the period 1988 to 1993, reduced inequality in the hourly wages of heads was the dominant cause of the improvement in the household income distribution. For the period 1997 to 1999, on the other hand, changes in other incomes, along with changes in the wages of heads, was an important contributor to the widening of the income disparity. Changing hours of heads was also a nontrivial factor, accounting for 15% of the rise in income in equality during the period. The relative contribution of changing labor supply to the rise in income inequality after 1997 might be much greater, if the effects of changing employment of heads could be considered.