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Domestic and International Causes for the Rise of Pay Inequality in OECD Nations Between 1980 and 2000
Abstract
Purpose – We study the determinants of growing wage inequality in 16 OECD countries in the past two decades of the twentieth century. The main independent variables that we consider are those pertaining to labor market institutions, to international trade with less developed nations, and to deindustrialization.
Methodology – We specify a statistical model of pay differentials using first differences over five-year periods. The main estimation method used is weighted ordinary least squares. Where necessary, we use instrumental variables and two-stage least squares. We also undertake extensive robustness exercises, including a version of extreme bounds analysis and deleting each individual country from the analysis.
Findings – The determinants of wage inequality are different in the 1980s and in the 1990s. In the 1980s, growing wage dispersion is due to changes in the institutions of the labor market, including declining unionization and declines in the level at which wages are bargained collectively. In the 1990s, increases in pay inequality are due to increasing trade with less developed nations and weakening of social insurance programs.
Originality – This is the first study to report that the causes for pay inequality differed between the 1980s and the 1990s. It is also the first to document statistically that trade with the less developed nations systematically increases pay inequality in the developed world in the 1990s.
... For the more recent period up to 2008, OECD (2011) reports similar findings, although with nuances: overall the effect of LDC imports is distribution neutral, but considering the institutional context, such imports tend to compress the wage dispersion in countries with stronger employment protection legislation (EPL) but widen it in countries with weaker EPL. For Golden and Wallerstein (2011), however, trade with LDCs is one of the key drivers of increased wage dispersion within 16 OECD countries during the 1990s. 27 Their results distinguish the period of the 1990s from the decade of the 1980s, when trade played no role but institutions did (see Section 19.5.3). ...
... 37 This result is consistent with the fact that outsourcing activities to developing economies account for a small portion of total outward FDI stock in most OECD countries. 38 Analyzing 16 OECD countries over 1980, Mahler (2004 also found that outward FDI is not significantly related to both household earnings and income inequality in either direction. ...
... benefit low-income groups as a whole (Mahler, 2004), creation of an institutional environment in which workers care more about wage dispersion because of some shared norm of fairness (Golden and Wallerstein, 2011) or employers following certain pay norms where workers are paid a fraction of their productivity plus a uniform amount (for a discussion of this reputational approach see Atkinson, 2002). Another factor increasingly analyzed is the impact of wage-setting centralization and coordination. ...
This chapter provides a thorough survey of what recent international (i.e., cross-country) studies can tell us about the multiple causes of income inequality in the OECD area with regard to both levels and trends. The survey covers economics literature in particular but also relevant evidence from sociology and political science. We provide an overview of drivers of inequality in six areas: (i) structural macroeconomic sectoral changes, (ii) globalization and technology change, (iii) labor market and other relevant institutions, (iv) politics and political processes, (v) tax/transfer schemes, and (vi) demographic and other microstructural changes. We find that the literature, while extremely rich in partial analysis of all six areas, provides very few analyses with truly multivariate and multicountry specifications for the joint section of the OECD and EU countries. Suggestions include more cross-discipline reflections on various findings. This is now well facilitated by the spectacular development of data, as well as in relation to methodological harmonization across disciplines.
... Hence, the growth of earnings at the very top of the distribution can be partially explained by declining union strength because collective bargaining traditionally restrained the compensation of corporate executives. The extant scholarship also suggests that union density might be an equalizing tool in other OECD countries (Darcillon 2016;Golden and Wallerstein 2011;Koske and Wanner 2013). These studies, however, rely on cross-sectional data, being potentially biased due to omitted variable bias and simultaneity. ...
... A further explanation for the lack of relationship between unionization and income inequality in advanced industrial societies is that union coverage plays a larger role than union density (Golden and Wallerstein 2011). Wage setting also seems to impact negatively on income inequality, although the effect of this kind of labour regulation is closely tied to the influence of unions in the wage-setting process (Oliver 2008). ...
Over the past two decades, research on the impacts of a diverse range of public policies and income inequality has seen rapid growth. Despite the large number of publications to date, there remain important lacunae in our understanding of how policy interventions might help to reduce income inequality. This paper aims to fill this void by providing a systematic literature review of 270 publications that examine four key policy areas: (1) tax policy, (2) social benefits, (3) labour market interventions, and (4) education policy. We describe patterns of empirical findings and implications drawn from the reviewed publications. The strengths and weaknesses of the existing literature are also discussed, along with potential future research avenues.
... This is corroborated by the literature. SeeBotta, Yajima, and Porcile (2022),Doytch and Uctum (2011), andGolden and Wallerstein (2011) ...
The relatively small panel cointegration literature on the dynamics between FDI and income inequality predominantly finds that FDI will reduce income inequality in the long-run in developed countries. However, we point out an important technical oversight in the literature. Not accounting for cross-section dependence in panel data methodologies may yield unreliable results. Expanding on the work of Herzer and Nunnenkamp [(2013). Inward and outward FDI and income inequality: Evidence from Europe. Review of World Economics, 149(2), 395–422. https://doi.org/10.1007/s10290-013-0148-3], who pioneered the use of panel cointegration in the European context, we obtain different results when we account for cross-section dependence and employ economic procedures robust to it. Using a panel containing 16 OECD countries (1979–2017), 2 income inequality measures, and 4 FDI measures, we begin by showing strong evidence for the existence of cross-section dependence. Then, using second-generation econometric procedures, we do not find any evidence for a cointegrating relationship between inward FDI and income inequality. We do find evidence that outward FDI is cointegrated with income inequality; however, contrary to the main results of the literature, we find that it widens the income gap in the long-run. Additionally, our results support the view that fiscal policy is an important tool to reduce income inequality.
... periods. Quantitative evidence of this hypothesis is presented by Golden and Wallerstein (2011) and Pontusson (2013) for the p90/p10 wage differential, and by Baccaro (2011) We are not aware of any studies that have analyzed the determinants of the functional and the personal distribution in conjunction with each other for the same country sample and time period. Therefore, in the present chapter, we estimate the following three equations, using the same sample of 18 countries as in the current account regressions: Notes: TIS is the top 5% household income share. ...
The contribution of this dissertation is to empirically analyze the link between income distribution, sectoral financial balances, and the current account. Firstly, it examines the relationship between the personal and the functional income distribution which may have rather different implications for aggregate demand and the current account. Secondly, it analyzes the importance of different sectors of the economy for current account balances and tests whether households are able to fully pierce the institutional veils of the corporate and the government sector. Thirdly, it investigates how changes in the personal and the functional income distribution affect the saving and investment decisions of the household and the corporate sector, and hence the current account. Finally, it shows how different growth regimes are linked to different patterns of personal and functional income distribution, and how differences in wage bargaining institutions contribute to explaining these different patterns of income distribution.
... While in the 1980s, growing wage dispersion was due to changes in the institutions of the labour market, including declining unionization and a decline in the level at which wages are bargained collectively. In the 1990s, increases in pay inequality were due to increasing trade with less developed nations and a weakening of social insurance programmes (Golden and Wallerstein 2011). ...
... It goes without saying that this observation needs be verified through more rigorous analyses based on pooling cross-section time-series data. For the time being, let me simply note that the data patterns shown in Figures 7-9 are consistent multivariate regression results reported by Baccaro (2011) and Golden and Wallerstein (2011). ...
This article explores the implications of the OECD-wide decline of union density for earnings inequality and income redistribution by looking at aggregate (country-level) data. Over the period 1975–95, countries that experienced relatively large declines in union density also experienced relatively large increases in earnings inequality. In addition, governments apparently became less willing to engage in ‘compensatory redistribution’ in these countries. Since the early 1990s, however, union decline has become less closely associated with rising earnings inequality and redistributive policy changes. I argue that the declining relevance of unionization has to do with changes in the position of union members in the income distribution. In most OECD countries, the average union member has become relatively better off as union density has declined and union members have probably become less supportive of wage solidarity and redistributive government policies.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
Many industrialized countries have experienced increasing wage inequality and erosion of collective bargaining systems since the 1980s. Although several studies have revealed how unions affect trends in wage inequality in western countries, little is known about their effects in Japan. This study examines whether and how unions affected trends in Japanese wage inequality for male employees between 1985 and 2015. Using data from the Social Stratification and Mobility Survey（SSM） conducted in 1985 and 2015, we conducted Recentered Influence Function（RIF） regressions on the natural logarithm of wages and an extension of the Oaxaca-Blinder decomposition method that can be applied to various distributional measures. We found that unions compressed wage distribution in 1985, but not in 2015. Unions also contributed to the changes in wage distribution over this period, and composition effects linked to unions（the impact of de-unionization）increased wage inequality. On the other hand, the effects of unionsʼ wage structure reduced inequality at the low-end of the distribution. In 1985, union membership increased wages at the low-end and middle-end of the distribution and lowered wages at the top-end of the distribution, effectively widening the wage distribution at the lowend and equalizing the wage distribution at the top-end. However, in 2015, unions could no longer impact wages. Although this wage structure effect contributed to reducing wage inequality at the low-end, this study concluded that the impact of deunionization on increasing wage inequality was more robust than the unionsʼ wage structure effect.
This article proposes a comparative political economy framework for analyzing the links between varieties of capitalism (VoC) and growth models, with a focus on the role of income distribution in the international trade imbalances leading up to the global financial crisis of 2008. For a panel of 18 countries over the period 1981–2007, we find that strongly rising top income shares contributed to debt-led growth and current account deficits in major liberal market economies (LMEs), whereas pronounced falls in the wage share contributed to export-led growth and current account surpluses in coordinated market economies (CMEs). We discuss how, against a global trend of liberalization and de-unionization, the institutional features originally thought to establish prosperous (and stable) VoC were linked to the emergence of distinct but similarly inequitable (and unstable) growth models in LMEs and CMEs.
This article examines the nexus of globalization, welfare systems and income inequality, in which a key theme is the assessment of how the distributional consequences of globalization are altered by the welfare benefit programmes of advanced welfare states. Existing literature contends that globalization is one of the principle reasons for the current increases in income inequality in developed economies. However, the distributional effects of globalization can vary across disparate national contexts. The study investigates whether welfare systems successfully compensate those who are displaced by external competition while reducing the income inequalities caused by globalization. For the empirical analysis, both random- and fixed-effects models with cluster-robust standard errors are utilized, as are comprehensive measures of globalization, welfare policy and income inequality. The results from 16 affluent democracies between 1980 and 2010 show that some aspects of globalization were significantly related to increased income inequality; however, the relationship was also significantly moderated by generous welfare benefit programmes. These findings support the argument that welfare systems play a critical role in compensating for the rising income inequalities caused by globalization.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge University Press, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a ‘return of electoral and coalitional politics’ to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
We review research on institutions of redistribution operating in high-income countries. Focusing on the nonelderly, we invoke the concept of the household income package, which includes income from labor, from related households, and from the state. Accordingly, we assess three institutional arenas: predistribution (rules and regulations that govern paid work), private redistribution (interhousehold transfers), and conventional public redistribution (operating via cash transfers and direct taxes). In each arena, we assess underlying policy logics, identify current policy controversies, summarize contemporary cross-national policy variation, and synthesize existing findings on policy effects. Our assessment of redistributional effects focuses on three core socioeconomic outcomes: low pay, child poverty, and income inequality. We close by assessing how the three institutional arenas perform collectively and by calling for further work on how these institutions change over time and how they affect subgroups differentially. Expected final online publication date for the Annual Review of Sociology Volume 44 is July 30, 2018. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
This book serves as a sequel to two distinguished volumes on capitalism: Continuity and Change in Contemporary Capitalism (Cambridge, 1999) and Order and Conflict in Contemporary Capitalism (1985). Both volumes took stock of major economic challenges advanced industrial democracies faced, as well as the ways political and economic elites dealt with them. However, during the last decades, the structural environment of advanced capitalist democracies has undergone profound changes: sweeping deindustrialization, tertiarization of the employment structure, and demographic developments. This book provides a synthetic view, allowing the reader to grasp the nature of these structural transformations and their consequences in terms of the politics of change, policy outputs, and outcomes. In contrast to functionalist and structuralist approaches, the book advocates and contributes to a 'return of electoral and coalitional politics' to political economy research.
How does political party control determine changes to social policy, and by extension, influence inequality in America? Conventional theories show that Democratic control of the federal government produces more social expenditures and less inequality. Welfare for the Wealthy reexamines this relationship by evaluating how political party power results in changes to both public social spending and subsidies for private welfare – and how a tradeoff between the two, in turn, affects income inequality. Christopher Faricy finds that both Democrats and Republicans have increased social spending over the last forty-two years. And while both political parties increase federal social spending, Democrats and Republicans differ in how they spend federal money, which socioeconomic groups benefit, and the resulting consequences for income inequality.
Considering the contribution of the distribution of individual wages and earnings to that of household incomes we find two separate literatures that should be brought together, and bring "new institutions" into play. Growing female employment, rising dual-earnership and part-time employment underline its relevance. We discuss the measurement of wage inequality, data sources, and stylized facts of wage dispersion for rich countries. The literature explaining the dispersion of wage rates and the role of institutions is evaluated, from the early 1980s to the recent literature on job polarization and tasks as well as on the minimum wage. Distinguishing between supply-and-demand approaches and institutional ones, we find supply and demand challenged by the empirical measurement of technological change and a risk of ad hoc additions, without realizing their institutional preconditions. The institutional approach faces an abundance of institutions without a clear conceptual delineation of institutions and their interactions. Empirical cross-country analysis of the correlation between institutional measures and wage inequality incorporates unemployment and working hours dynamics, discussing the problems of matching individuals to their relevant institutional framework. Minimum wage legislation and active labor market policies come out negatively correlated to earnings inequality in US and EU countries.
Observers of social change have been fascinated for a long time by the question of how the employment structure evolves: toward good jobs, bad jobs, or increasing polarization? Three issues are at stake. At the microlevel of single jobs, the concern is with the quality of new employment created. The question raised is to know whether jobs are becoming better paid, more highly skilled, and endowed with greater autonomy. At the macrolevel of social structure, the debate evolves around the question whether occupational change transforms affluent countries into large middle-class societies or, on the contrary, into increasingly divided class societies. The two levels of analysis are bridged by the concern for social mobility. Here, the question is as to whether change in the employment structure allows forthcoming generations to move to more rewarding jobs than those held by their parents – or whether downward mobility is the more likely outcome. The direction of change has then manifest implications for parties’ electoral constituencies and citizens’ political preferences. This chapter strives to shed light on some of these issues by analyzing the pattern of occupational change in Western Europe since 1990. It does so by examining the evolution of the employment structure with large-scale microlevel data for Britain, Denmark, Germany, Spain, and Switzerland. The central question is to know what kind of occupations have been expanding and declining over the last two decades: high-paid jobs, low-paid jobs, or both? Our analysis shows that the five countries under study underwent a process of major occupational upgrading. The only ambiguity concerns the question whether the process is clear-cut or has a polarizing twist to it. The labor market created ample opportunities at the high-skilled end of the occupational structure but made perspectives bleak in the lower-middle range of jobs held by clerks and production workers.
Purpose – The goal of this chapter is to explore whether variation in the distribution of union members across the income distribution affects the role of unions in redistributive politics.
Design/methodology/approach – The conceptual part of the study provides a theoretical motivation for disaggregating organized labor by income. The empirical part uses European Social Survey data for 15 West European countries 2006–2008 to describe the composition of union membership by income across countries and to explore, in a preliminary fashion, the implications of where union members are located in the income distribution for social protection and redistribution.
Findings – In most countries, workers with incomes above the median are better organized than workers below the median and the income of the median union member exceeds the income of the median voter. The political implications of the overrepresentation of relatively well-off workers depend on the mechanism of preference aggregation within unions and the influence of unions in the policymaking process. While leaving a thorough examination of these issues for future research, we present descriptive regression results suggesting that the membership composition of unions by income is related to income inequality and redistribution but not social insurance.
Originality/value of paper – This is the first comparative study to map the distribution of union members across the income distribution and to examine the implications of compositional variation by income for redistributive politics.
Proponents often recommend high labor standards as a means of reducing inequality between and within countries. Opponents suggest that labor standards exacerbate international and domestic inequalities. In this paper, we forward a simple argument whereby the impact of higher labor standards on domestic inequality depends on a country's labor endowment. We hypothesize that where labor is abundant, higher standards will exacerbate inequality. Where labor is scarce, higher labor standards might lower inequality. In both cases, the impact of labor standards on inequality work through an employment and wage effect. Using newly available data on labor standards around the world from 1981 to 2000, we provide evidence largely consistent with our hypotheses. Higher labor standards do, indeed, exacerbate inequality in labor-abundant economies. On the other hand, higher labor standards lower inequality in labor-scarce economies. We discuss the implications of these findings for work on labor market insiders and outsiders as well as the political economy of development.
We use data from the Luxembourg Income Study
to examine household market inequality, redistribution, and the
relationship between market inequality and redistribution in affluent OECD
countries in the 1980s and 1990s. We observe sizeable increases in market
household inequality in most countries. This development appears to have
been driven largely, though not exclusively, by changes in employment: in
countries with better employment performance, low-earning households
benefited relative to high-earning ones; in nations with poor employment
performance, low-earning households fared worse. In contrast to widespread
rhetoric about the decline of the welfare state, redistribution increased
in most countries during this period, as existing social-welfare programs
compensated for the rise in market inequality. They did so in proportion
to the degree of increase in inequality, producing a very strong positive
association between changes in market inequality and changes in
redistribution. We discuss the relevance of median-voter theory and power
resources theory for understanding differences across countries and
changes over time in the extent of compensatory redistribution. a
This article examines the crisis of the social democratic model in the four countries (Austria, Norway, Finland, and Sweden) in which social democracy was most successful in maintaining and even extending its two central achievements—full employment and the institutional welfare state—through the end of the 1980s. Four major conclusions emerge from the analysis. First, supply side measures, more so than demand management, were central to the employment and growth models pursued by social democracy prior to the early 1970s. Second, the increasing trade openness contributed little to the recent problems of social democracy. By contrast, financial internationalization and deregulation and the multinationalization of capital undermined important features of the supply and demand sides of the models. Third, changes in the international and domestic economies have weakened centralized bargaining. Fourth, governments in the three Nordic countries made serious mistakes in economic policy, which greatly aggravated their difficulties.
This article assesses the impact of economic globalization and domestic political factors on income inequality and state redistribution in the developed countries over the past two decades, using household-level data from the Luxembourg Income Study that are more detailed, accurate, and cross-nationally comparable than those used in previous empirical work. It examines three major modes of international integration—trade, direct foreign investment, and international financial flows—as well as four domestic political variables—the partisan balance of national cabinets, electoral turnout, union density, and the centralization of wage-setting institutions. The study finds only scattered relationships between global integration and income distribution or redistribution but reasonably strong positive relationships between several domestic political variables and an egalitarian distribution of income and/or extensive state redistribution. These findings are consistent with a growing number of studies that emphasize the resilience of domestic political factors in the face of economic globalization.
This article draws on a new data set that enables the authors to compare the distribution of income from employment across OECD countries. Specifically, the article conducts a pooled cross-sectional time-series analysis of the determinants of wage inequality in sixteen countries from 1973 to 1995. The analysis shows that varieties of capitalism matter. The authors find that the qualities that distinguish social market economies from liberal market economies shape the way political and institutional variables influence wage inequality. Of particular interest to political scientists is the finding that the wage-distributive effects of government partisanship are contingent on institutional context. Union density emerges in the analysis as the single most important factor influencing wage inequality in both institutional contexts.
We present a theory of social policy preferences that emphasizes the composition of peopleÕs skills. The key to our argument is that individuals who have made risky investments in skills will demand insurance against the possible future loss of income from those investments. Because the transferability of skills is inversely related to their specificity, workers with specific skills face a potentially long spell of unemployment or a significant decline in income in the event of job loss. Workers deriving most of their income from specific skills therefore have strong incentives to support social policies that protect them against such uncertainty. This is not the case for general skills workers, for whom the costs of social protection weigh more prominently. We test the theory on public opinion data for eleven advanced democracies and suggest how differences in educational systems can help explain cross-national differences in the level of social protection.
In much of the political economy literature, social democratic governments are assumed to defend the interests of labor. The main thrust of this article is that labor is divided into those with secure employment (insiders) and those without (outsiders). I argue that the goals of social democratic parties are often best served by pursuing policies that benefit insiders while ignoring the interests of outsiders. I analyze Eurobarometer data and annual macrodata from 16 OECD countries from 1973 to 1995. I explore the question of whether strategies prevalent in the golden age of social democracy have been neglected and Left parties have abandoned the goal of providing equality and security to the most vulnerable sectors of the labor market. By combining research on political economy, institutions, and political behavior, my analysis demonstrates that insider–outsider politics are fundamental to a fuller explanation of government partisanship, policy-making, and social democracy since the 1970s.
This paper examines the quality of jobs generated during periods of job expansion from the 1960s through to the 1990s in the USA. The central results of the study are: first, the long 1990s economic boom produced a pattern of asymmetrically polarized job expansion: very strong expansion of jobs in the top tier of the employment structure combined with very limited growth in the middle. Secondly, while job growth at the top was strong in the 1990s, the overall pattern of job expansion was much less favorable for the labor force as a whole than in earlier expansions. Thirdly, there has been a dramatic change in the racial and gender patterns of job expansion since the 1960s: gender differences in job expansion were very sharp in the 1960s and quite muted in the 1990s, while the racially polarized character of job expansion has increased, especially at the bottom of the employment structure. Finally, immigration, especially of Hispanics, is deeply connected to the employment expansion in the bottom tiers of the employment structure. Underlying these descriptive patterns are dramatic changes in the sectoral patterns of job expansion in the 1990s compared with the 1960s: the much slower growth of middle-level jobs in the 1990s is rooted in the decline of manufacturing; the stronger growth of bottom-end jobs is rooted in accelerated growth of retail trade and personal services in the 1990s; and the very strong growth of high-end jobs is rooted in high tech sectors.
This article assesses the impact of globalization on welfare state effort in the OECD countries. Globalization is defined in terms of total trade, imports from low wage economies, foreign direct investment, and financial market integration. Welfare effort is analyzed in terms both of public spending (and separately on social service provision and income transfer programs) and taxation (effective rates of capital taxation and the ratio of capital to labor and consumption taxes). Year-to-year increases in total trade and international financial openness in the past three decades have been associated with less government spending. In contrast, integration into global markets has not been associated either with reductions in capital tax rates, or with shifts in the burden of taxation from capital to consumption and labor income. Moreover, countries with greater inflows and outflows of foreigndirect investment tend to tax capital more heavily.
An influential line of argument holds that globalization causes economic uncertainty and spurs popular demands for compensatory welfare state spending. This article argues that the relationship between globalization and welfare state expansion is spurious and that the engine of welfare state expansion since the 1960s has been deindustrialization. Based on cross-sectional-time-series data for fifteen OECD countries, the authors show that there is no relationship between globalization and the level of labor-market risks (in terms of employment and wages), whereas the uncertainty and dislocations caused by deindustrialization have spurred electoral demands for welfare state compensation and risk sharing. Yet, while differential rates of deindustrialization explain differences in the overall size of the welfare state, its particular character-in terms of the share of direct government provision and the equality of transfer payments-is shaped by government partisanship. The argument has implications for the study and the future of the welfare state that are very different from those suggested in the globalization literature.
This paper studies the considerably higher level of wage inequality in the United States than in nine other OECD countries. The authors find that the greater overall U.S. wage dispersion primarily reflects substantially more compression at the bottom of the wage distribution in the other countries. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, higher U.S. prices (i.e., rewards to skills and rents) are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the United States, provide the most persuasive explanation for these patterns. Copyright 1996 by University of Chicago Press.
The idea of America as politically polarized—that there is an unbridgeable divide between right and left, red and blue states—has become a cliché. What commentators miss, however, is that increasing polarization in recent decades has been closely accompanied by fundamental social and economic changes—most notably, a parallel rise in income inequality. In Polarized America, Nolan McCarty, Keith Poole, and Howard Rosenthal examine the relationships of polarization, wealth disparity, immigration, and other forces, characterizing it as a dance of give and take and back and forth causality. Using NOMINATE (a quantitative procedure that, like interest group ratings, scores politicians on the basis of their roll call voting records) to measure polarization in Congress and public opinion, census data and Federal Election Commission finance records to measure polarization among the public, the authors find that polarization and income inequality fell in tandem from 1913 to 1957 and rose together dramatically from 1977 on; they trace a parallel rise in immigration beginning in the 1970s. They show that Republicans have moved right, away from redistributive policies that would reduce income inequality. Immigration, meanwhile, has facilitated the move to the right: non-citizens, a larger share of the population and disproportionately poor, cannot vote; thus there is less political pressure from the bottom for redistribution than there is from the top against it. In "the choreography of American politics" inequality feeds directly into political polarization, and polarization in turn creates policies that further increase inequality.
This paper investigates the distribution of well being among world citizens during the last two centuries. The estimates show that inequality of world distribution of income worsened from the beginning of the 19th century to World War II and after that seems to have stabilized or to have grown more slowly. In the early 19th century most inequality was due to differences within countries; later, it was due to differences between countries. Inequality in longevity, also increased during the 19th century, but then was reversed in the second half of the 20th century, perhaps mitigating the failure of income inequality to improve in the last decades. (JEL D31, F0, N0, O0)
Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets it isacceptable for a firm to raise prices (or cut wages) when profits arethreatened, and to maintain prices when costs diminish. It is unfair toexploit shifts in demand by raising prices or cutting wages. Several market anomalies are explained by assuming that these standards of fairness influence the behavior of firms. Copyright 1986 by American Economic Association.
This paper provides evidence that the decline in the real value of the minimum wage and in the rate of unionization account for a significant share of the increase in wage inequality in the United States between 1979 and 1988. The role of the minimum wage is particularly important for women, while deunionization has the largest impact on men. The authors develop a semiparametric procedure that applies kernel density methods to appropriately weighted samples. The procedure provides a visually clear representation of where in the density of wages institutional and labor market forces exert the greatest impact. Copyright 1996 by The Econometric Society.
This paper argues that the main cause of the deteriorating economic position of unskilled workers in the United States and other developed countries has been expansion of trade with developing countries. In the framework of a Heckscher-Ohlin model, it outlines the evidence in support of this view, responds to criticisms of this evidence, and challenges the evidence for the alternative view that the problems of unskilled workers are caused mainly by new technology. The paper concludes with a look at the future and at the implications for public policy. Copyright 1995 by American Economic Association.
This paper was presented in Frankfurt at the Economic Policy Panel Meeting, April 9, 1999 and in Ottawa at the CSLS Conference on the Structural Aspects of Unemployment in Canada, April 23, 1999. We have benefited from discussions during these meetings and in particular from comments by David Card, Harry Huizinga, Peter Kuhn, Danny Quah and Charles Wyplosz. We also thank Joop Hartog for his comments on a previous version of the paper.
Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner. When voters have both redistributive and insurance motives for supporting welfare spending, the effect of inequality depends on how benefits are targeted. Greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings. With endogenous targeting, support for benefits to those without earnings declines as inequality increases, whereas support for aggregate spending is a V-shaped function of inequality. Statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model.
Using a vast swath of data spanning the past six decades, Unequal Democracy debunks many myths about politics in contemporary America, using the widening gap between the rich and the poor to shed disturbing light on the workings of American democracy. Larry Bartels shows the gap between the rich and poor has increased greatly under Republican administrations and decreased slightly under Democrats, leaving America grossly unequal. This is not simply the result of economic forces, but the product of broad-reaching policy choices in a political system dominated by partisan ideologies and the interests of the wealthy. Bartels demonstrates that elected officials respond to the views of affluent constituents but ignore the views of poor people. He shows that Republican presidents in particular have consistently produced much less income growth for middle-class and working-poor families than for affluent families, greatly increasing inequality. He provides revealing case studies of key policy shifts contributing to inequality, including the massive Bush tax cuts of 2001 and 2003 and the erosion of the minimum wage. Finally, he challenges conventional explanations for why many voters seem to vote against their own economic interests, contending that working-class voters have not been lured into the Republican camp by "values issues" like abortion and gay marriage, as commonly believed, but that Republican presidents have been remarkably successful in timing income growth to cater to short-sighted voters. Unequal Democracy is social science at its very best. It provides a deep and searching analysis of the political causes and consequences of America's growing income gap, and a sobering assessment of the capacity of the American political system to live up to its democratic ideals.
I test two theories of the political processes of trade unions. The first argues that wage moderation depends on a centralized labor movement. The second contends that, institutional conditions permitting, unions' coordination of bargaining strategies is sufficient. Coordination is most likely to he achieved when there are small number of unions that do not compete for members, that is, when union monopoly is high. Important empirical anomalies may be resolved by analyzing the effects of union centralization and monopoly separately, rather than combining them into a composite index of corporatism. Reanalyzing comparative data from Organization of Economic Cooperation and Development countries between 1963 and 1985 largely corroborates the hypothesis that monopoly is more important than either centralization or composite indices of corporatism for national economic performance. The conceptual rationale underlying indices of corporatism should be reexamined.
The distribution of pay differs significantly across countries and over time among advanced industrial societies. In this paper, institutional and political determinants of pay inequality an studied in sixteen countries from 1980 to 1992. The most important factor in explaining pay dispersion is the level of wage-setting, i.e., whether wages are set at the level of the individual, the plant, the industry, or the entire private sector. The impact of centralization is the same whether centralization occurs via collective bargaining or via government involvement in private-sector wage-setting. The concentration of unions and the share of the labor force covered by collective bargaining agreements also matter. After controlling for wage-setting institutions, other variables such as the governing coalition, the size of government, international openness, and the supply of highly educated workers have little impact. Economic, political, and norm-based explanations for the association of centralization with egalitarian outcomes are discussed.
Few features of economic, social, or political life in industrialized democracies differ as much as the relative size of the trade union movement. The current density of union membership in the labor force ranges over almost the entire spectrum from above 90% in Sweden to under 20% in the United States (Goldfield 1987, 16). The level of unionization varies far more than such other characteristics of the labor force as the sectoral distribution of workers, the share of wages in GNP, rates of unemployment, or even the size of the public sector. Unionization rates vary more than such other forms of popular mobilization as electoral turnout or the share of the vote received by parties bearing communist, socialist, social democratic, or labor labels. The economic effects of high levels of unionization are ambiguous. Unions that are large relative to the economy may simultaneously have more power in the labor market and more of an incentive to moderate their wage demands. A union that covers only a small fraction of an industry’s work force, for example, can gain wage increases partly at the expense of employment among nonunion members, provided that union members have specialized skills not readily available elsewhere. In contrast, an industrial union covering the entire work force would be concerned with employment in all job categories. Bigger unions are not necessarily more militant unions (Cameron 1984; Olson 1982, chap. 4).
The debate on the resurgence of income inequality in some advanced industrial societies has often focused on the impact of an increasingly integrated world economy, typified by growing capital mobility, heightened international competition, and an increase in migration. This study represents one of the first systematic, cross-national examinations of the role of globalization in the inequality "U-turn." Results indicate, on the one hand, that total inequality variation is principally affected by the percentage of the labor force in agriculture, followed by the institutional factors union density and decommodification, and only then by globalization. On the other hand, longitudinal variation in inequality, while still dominated by the percentage of the labor force in agriculture, is also principally affected by aspects of globalization, such as southern import penetration and direct investment outflow, and to a lesser extent by migration. In other words, globalization explains the longitudinal trend of increasing inequality that took place within many industrial countries better than it does cross-sectional inequality differences among countries.
The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. The authors explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial societies from 1980 to 1995. They find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorrelated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are significantly higher in countries with more egalitarian income distributions. They show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.
There is wide agreement about the major goals of economic policy: high employment, stable prices, and rapid growth. There is less agreement that these goals are mutually compatible or, among those who regard them as incompatible, about the terms at which they can and should be substituted for one another. There is least agreement about the role that various instruments of policy can and should play in achieving the several goals.
Purpose – Since the 1960s, the affluent democracies have experienced substantial changes in earnings inequality at the same time as heightening economic globalization. This paper investigates the relationship between these two processes.
Methodology/Approach – I use fixed-effects models, and comprehensive measures of globalization and earnings inequality to scrutinize the relationship between the two in 18 affluent democracies. Although past studies concentrate on worker displacement, I examine how globalization affected earnings inequality before and after controlling for manufacturing employment and unemployment as indicators of displacement.
Findings – Initial evidence suggests net migration and investment openness have moderate positive effects, but trade openness has larger, more significant positive effects. In full models, only trade openness remains robustly significant. For a standard deviation increase in trade openness, earnings inequality should increase by between 1/5th and 2/5th of a standard deviation.
Originality/Value of paper – Beyond displacement, this study encourages investigation of power relations (e.g., class capacities of employers vs. workers) and institutional change (e.g., practices of firms) as mechanisms by which globalization contributes to inequality.
We investigate the forces affecting the distribution of income by analyzing an unbalanced panel of information for 16 industrialized countries for the years 1966 through 1994. Income inequality is measured with the Gini coefficient of equivalent disposable income; individuals are the unit of analysis; the statistical analysis uses panel methods. The results suggest that many factors affect the development of income inequality. Some factors are strictly economic: A decreased industrial sector generally fosters inequality, and some support is found for the view that increased trade of manufactured goods from developing countries is also a factor. Other forces are outside a strictly defined market sphere: Low inequality is found when a large proportion of the labor force belongs to a trade union and also when there is a large public sector. In addition, demographic circumstances are important, since the proportion of the population under age 15 has a positive effect on inequality. We find, however, no association between the unemployment rate and inequality.
To account for the strong and positive correlation found between
trade openness and the size of the public sector, scholars have
developed theoretical explanations in which politics have remained
conspicuously absent in two ways. First, why some economies are more
open than others has been (implicitly) attributed to parameters
exogenous to the political decisions of domestic actors. Second, the
presence of a sizable public sector has been merely thought of as an
automatic, and in some cases a functional, requirement of a free trade
regime. This mechanical link has come in two forms. In Rodrik shows that
higher levels of trade integration (coupled with high sectoral
concentration in the economy) increase the risks associated with the
international business cycle and call for publicly- nanced compensatory
programs in favor of the exposed sectors. Public expenditure, set by a
state purely conceived as a social planner, stabilizes aggregate income
and delivers social peace and political stability. In Aukrust argues
that the tradeable sector, modeled as an international-price-taker,
employs public spending to buy the acquiescence of the non-tradeable
sector to low wage increases, therefore ensuring the overall
competitiveness (and survival) of the national economy.
Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner. When voters have both redistributive and insurance motives for supporting welfare spending, the effect of inequality depends on how benefits are targeted. Greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings. With endogenous targeting, support for benefits to those without earnings declines as inequality increases, whereas support for aggregate spending is a V-shaped function of inequality. Statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model.
Key Words collective bargaining, industrial relations, wage setting s Abstract Between 1950 and 1980, labor markets grew increasingly organized in advanced industrial societies. Union membership in most countries expanded more rapidly than the labor force, centralized wage setting became more common, and union members became increasingly concentrated in a small number of large unions. Between 1980 and 1992, however, union density fell on average, and centralized wage setting grew increasingly rare. Only union concentration continued to increase in the 1980s. Existing theories of union organization and collective bargaining institutions are largely successful in explaining both the trends over time and much of the cross-national variation from 1950 to 1980, but they fail to account for the dramatic declines in union strength that some (but not all) countries have experienced since 1980.
Falling unemployment The Dutch and British cases
Unemployment rates in both the UK and the Netherlands have declined substantially since the early 1980s. This has been a decline in equilibrium unemployment, the result of combinations of supply‐oriented policies. The combinations are partly overlapping and partly differing between the two countries. The main difference is in wage negotiations: where the Dutch unions were already co‐operative, British unions were made to co‐operate. The main overlap is in the popularity of part‐time work and the re‐enforcement of financial incentives for work for unemployed workers collecting benefits.
— Steve Nickell and Jan van Ours
Globalization is exposing social fissures between those with the education, skills, and mobility to flourish in an unfettered world market--the apparent "winners"--and those without. These apparent "losers" are increasingly anxious about their standards of living and their precarious place in an integrated world economy. The result is severe tension between the market and broad sectors of society, with governments caught in the middle. Compounding the very real problems that need to be addressed by all involved, the kneejerk rhetoric of both sides threatens to crowd out rational debate. From the United States to Europe to Asia, positions are hardening. Author Dani Rodrik brings a clear and reasoned voice to these questions.Has Globalization Gone Too Far? takes an unblinking and objective look at the benefits--and risks--of international economic integration, and criticizes mainstream economists for downplaying its dangers. It also makes a unique and persuasive case that the "winners" have as much at stake from the possible consequences of social instability as the "losers." As Rodrik points out, ". . . social disintegration is not a spectator sport--those on the sidelines also get splashed with mud from the field. Ultimately, the deepening of social fissures can harm all." President Clinton read the book and it provided the conceptual basis for the trade/IMF portions of his State of the Union message in January 1998. * Globalization is "the next great foreign policy debate," Thomas Friedman of the New York Times wrote, and he found Has Globalization Gone Too Far? "provocative" on the subject. This book provides a critical definition--and welcome clarity--to that debate.
Centralized wage-setting arrangements compress wage differentials along many dimensions, but how do they affect employment structure? To address this issue, we relate the evolution of US–Swedish differences in the industry distribution of employment to relative wages between and within industries. We find that centralized wage setting shifted Swedish employment away from industries with high wage dispersion among workers, a high mean wage and, especially, a low mean wage. The dissolution of Sweden's centralized wage-setting beginning in 1983 led to widening wage differentials and a reversal in the evolution of US–Swedish differences in industry structure.
The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly-financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. We explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial socieities from 1980-1995. We find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorrelated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are signinficantly higher in countries with more egalitarian income distributions. We show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.
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We estimate the relative influence of trade versus technology on wages in a “large-country” setting, where technological change
affects product prices. Trade is measured by the foreign outsourcing of intermediate inputs, while technological change is
measured by expenditures on high-technology capital such as computers. The estimation procedure we develop, which modifies
the conventional “price regression,” is able to distinguish whether product price changes are due to factor-biased versus
sector-biased technology shifts. In our base specification we find that computers explain about 35 percent of the increase
in the relative wage of nonproduction workers, while outsourcing explains 15 percent; both of these effects are higher in
other specifications.
This paper studies the stability of centralized wage-setting systems in light of the on-going decentralization of labor relations in much of the Western world. It takes the decline of peak level bargaining in Sweden, the traditional archetype of centralized collective bargaining, as its key case for study, but is intended to speak to other cases as well. Like many earlier analysts, we argue that centralization offers potential economic gains by internalizing the costs of inefficient wage inflation. With this potential benefit, however, comes a cost: centralized decisions are not sufficiently responsive to local conditions. To avoid excessive inflexibility, the center can allow for "wage drift" at the local level (i.e., local wage settlements above the central agreement), but once the center allows wage drift, it becomes difficult to distinguish between justifiable drift due to local economic conditions and unjustifiable drift in the self-interest of local bargaining pairs. Thus, centralized wage-setting systems face a tradeoff: allowing less drift makes it easier to monitor local bargaining pairs but harder to achieve the appropriate responsiveness to local conditions. We develop a game-theoretic model of this tradeoff, and consider how the center's optimal policy moves towards decentralization (i.e., towards allowing more drift) as the cost of inflexibility rises. We then interpret the evolution of centralized bargaining in Sweden in light of the model. We argue that centralized bargaining flourished when the private-sector blue-collar workers (represented by LO) dominated the workforce, but began to wane as public-sector and white-collar unions grew in strength, as skill differentials in decentralized labor markets grew in size, and as product-market competition intensified (especially through the shortening of product lifecycles).
There has been no shortage of theories which purport to explain why globalisation may have, adverse, insignificant or even beneficial effects on income and earnings inequality. Surprisingly, the empirical realities remain an almost complete mystery. In this paper we use data on industrial wage inequality, household income inequality as well as measures of the economic, social and political dimensions of globalisation to examine this controversial issue. We find that the economic dimension of globalisation, and – less robustly – political integration, have exacerbated wage inequality in developed countries. In contrast, the impact of globalisation on both income and earnings inequality in less-developed countries has been negligible.
Postwar wage setting in the Nordic countries
- M. Golden M. Wallerstein