Labour Market Institutions and the Personal Distribution of Income in the OECD

By Daniele Checchi, Cecilia García-Peñalosa. Social Science Research Network, 2009

315 citations recorded by the source corpus.

We examine what determines differences across countries and over time in the distribution of personal incomes in the OECD. We first model the wage determination process and show that unemployment, the labour share, and the wage differential are all functions of labour market institutions. Next we show that in a model economy with only four types of agents – capitalists, skilled and unskilled workers, and unemployed – the Gini coefficient of personal incomes can be expressed as a function of the above three variables. Labour market institutions hence affect income inequality, though the sign of their impact is ambiguous. Stronger unions and/or a more generous unemployment benefit tend to reduce inequality through reduced wage differentials, a higher labour share, and also higher unemployment. We then use a panel of OECD countries for the period 1970-96 to examine these effects. We find, first, that the labour share remains an important aspect of overall inequality patterns, and, second, that stronger unions and a more generous unemployment benefit tend to reduce income inequality. High capital-labour ratios also emerge as a strong equalising factor, which has in part offset the impact of increasing wage inequality on the US distribution of personal incomes.

Subfields: Economics and Econometrics, General Health Professions, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/d9df0d225033bcee73fe9ecf202e0dcdbad32297

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In General Health Professions

Martin Biewen

In Political Science and International Relations

Citations in the corpus

Understanding Rising Income Inequality in Germany, 1999/2000–2005/2006 (2012, background): “…economic, social, and institutional determinants such as demographic aspects, employment outcomes, remuneration of market activities, taxes, and government transfers (such a comprehensive view of the income distribution has been adopted in a recent study by Checchi and Garcia-Penalosa, 2010).”
The impact of redistributive policies on inequality in OECD countries (2012, unknown): “Checchi and García-Peñalosa (2008, 2010) find empirical 2 See Niehues (2010) for a more thorough discussion of this argument.”