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Unemployment and earnings inequality have moved closely together in South Africa in recent years, suggesting that there may not be a trade-off between them as the literature generally suggests. This paper explores the relationship between unemployment and earnings inequality in South Africa, specifically investigating the extent to which changes in unemployment can account for changes in earnings inequality. Decomposing overall income inequality by factor source shows the overwhelming importance of earnings in income inequality more generally. Decomposing earnings inequality by employment status reveals the centrality of unemployment in accounting for the level and trend of earnings inequality.
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