Changes in Economic Activity, Skills and Inequality in the Service Economy

Abstract

This paper aims to understand how wage inequality is associated with different level and kind of skills in service economy. Our logic of argument, changes in economic activity and skills in the service economy, is suggested following our observation on changes in skill by examining the International Standard of Industrial Classification of all Economies (ISIC) and the International Standard Classification of Occupations (ISCO). Then we examine how the service sector contributes to total income inequality since the 1980s through conducting a MLD (Mean Logarithmic Deviation) based decomposition analysis with four selected countries, Germany, United States, Sweden and Taiwan, using the Luxembourg Income Study (LIS) Database. Overall, the findings suggest that inequality within the service sector contributes most to total inequality. Among the three skill levels in service sector, inequality within the middle skill level contributed most to the total service sector inequality in all four selected countries.