In search of smoking guns: What makes income inequality vary over time in different countries?

We investigate the forces affecting the distribution of income by analyzing an unbalanced panel of information for 16 industrialized countries for the years 1966 through 1994. Income inequality is measured with the Gini coeff icient of equivalent disposable income; individuals are the unit of analysi s, the statistical analysis uses panel methods. The results suggest that ma ny factors affect the development of income inequality Some factors are str ictly economic: A decreased industrial sector generally fosters inequality, and some support is found for the view that increased trade of manufacture d goods from developing countries is also a factor Other forces are outside a strictly defined market sphere: Low inequality is found when a large pro portion of the labor force belongs to a trade union and also when there is a large public sector. In addition, demographic circumstances are important , since the proportion of the population under age 15 has a positive effect on inequality. We find, however no association between the unemployment ra te and inequality.