In recent years, in many countries, income inequality has increased while the labour share of income has declined. Using the Standardized World Income Inequality Database, we examine if income inequality, measured by the GINI Index, is related to the labor share of income in the U.S. and Canada. The paper uses time series regressions for the 1981-2011 period. Although apparently correlated, regression results confirm that declines in the labor income share have not had significant effects on income inequality.

Using data from the Labor Force Survey, February 2006 and 2019 of Canada, we document a decrease in wage inequality for females and males. In 2006 and 2019, wage inequality in small firms is higher than large firms and much of overall wage inequality occurs within groups (firm size and sex) rather than between groups.The scholarly significance of wage inequality is given by the fact that it is likely to be a major driver of income inequality ( Piketty, 2014, Ch.9). Wage inequality in turn is determined by among others by public policy concerning the education system.Our paper contributes to the literature by exploring not only overall wage inequality but also wage inequality by firm size and by gender in Canada. In this paper, we decompose wage differences between firms, less than 20 employees, 20 to 99 employees, 100 to 500 employees, and more than 500 employees in Canada in 2019 and 2006. We also decompose wage inequality between males and females. LITERATURE REVIEWKatz, Lawrence, F.; Autor, David H. (1999) mention that an analysis of changes in the US wage structure in the 1980s alone suggests little effect of supply factors since groups with rising relative wages have rising relative supplies (the more-educated, older workers, women) indicating demand shifts are the driving force. Islam, S. & Safavi, M. (2018) show that changes in income inequality in Canada and U.S have not been driven significantly by changes in the labor share. It is likely that income inequality is driven by other forces such as inequality within labour income, technological changes, globalization, and institutional factors governing the labour market. DiNardo, John; Lemieux, Thomas (1997) indicate that much more severe declines in the unionization rate in the United States than in Canada account for two-thirds of the differential growth in wage inequality between the two countries. Autor, David. H.; Katz, Lawrence F.; Kearney, Melissa S. (2008) demonstrate that skill demand shifts have played a central role in reshaping the wage structure, both during the monotone rise of inequality during the 1980s and the polarization of wage growth that followed.