Industrial dynamics and regional income inequality: Evidence from 29 Danish regions from 2001 to 2013

Abstract

In light of past years’ rapid growth of income inequality, increasing attention is paid to the dynamics behind inequality. Nonetheless, as of yet, little is known about industrial dynamics’ consequences for income inequality at a sub-national level. The theoretical framework presented in this study argues that indus- trial dynamics influence regional inequality due to its impact on job dynamics. Through descriptive statistics and fixed effect panel regressions using micro-data from 29 Danish regions, spanning from 2001 to 2013, this study examines the impact of industrial entries and exits on regional income inequality in Denmark. Factoring in for the typology in terms of manufacturing and service sectors, the sector’s knowledge intensity and the industries’ skill level, no substantial effect on inter-regional income inequality in Denmark is evident. However, despite small effect sizes on regional income inequality in Denmark, there are two main findings of the study. First, the entry of low-skilled jobs causes an increase in income inequality, due to their stratifying effect of the regional job pool. Second, the total share of exiting industries shows a negative correlation with income inequality. Particularly the exits of high knowledge-intensive manufacturing sec- tors show a robust correlation with income inequality. Explanations are found in the skill composition of the high knowledge-intensive manufacturing sectors, where the skill- and wage-levels are substantially higher compared to the other sectors investigated in this study.