Like the functional distribution of income, wage inequality is subject to fairly regular cyclical fluctuations. In this paper, we (i) analyze sources of these fluctuations, (ii) present models of endogenous cycles that in- clude heterogeneous labor and wage inequality, (iii) show that these mod- els generate patterns of both wage inequality and the functional income distribution that are in line with the evidence, and (iv) caution against any extrapolation of cyclical patterns to long-term trends and beliefs in expansionary aggregate demand policy as the key instrument to promote greater economic equality.
Keywords: Wage inequality, Goodwin cycles, functional distribution, aggregate demand policy
JEL classification: D31 D33 E32
Download