The purpose of this paper is to present and test the hypothesis that every society has to make a choice between the limitation of income inequality, on the one hand, and labour market efficiency under¬stood as low level of unemployment and high employment, on the other hand. This hypothesis was used by P. Krugman in mid 1990s to explain the performance of labour markets in the U.S. and Eu¬rope. He argued that negative economic shocks led to higher unemployment in Europe, whereas in the U.S. to greater in¬come inequality. The different response to shocks is mainly due to the diversity of labour market flexibility, above all wage flexibility. Since Krugman`s hypothesis is still well-known, it is reasonable to re-examine it. Generally, a trend towards greater income inequality has been indicat¬ed in a number of studies. There has been considerable discussion of the factors related to this phe¬nomenon, usually with emphasis on: liberalisa¬tion of international trade, skill-biased technical change - SBTC, labour market deregulation. However, only in a few studies econo¬mists take into consideration the correlation between unemployment (employment) rates and income inequality.