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

Abstract

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