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Institutional change and wage inequality

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  • Pi, Jiancai
  • Fan, Yanwei

Abstract

This paper analyzes how institutional change affects wage inequality. Institutional change is regarded as the reduction of contractual incompleteness. When institutions become better, contracts are less incomplete. Our main finding is that institutional change will narrow down (resp. widen) wage inequality if the share of the surplus in the skilled sector is sufficiently low (resp. high). When introducing incomplete contracts into the framework of skilled-unskilled wage inequality, we can obtain some different insights.

Suggested Citation

  • Pi, Jiancai & Fan, Yanwei, 2021. "Institutional change and wage inequality," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 440-452.
    • Handle: RePEc:eee:reveco:v:71:y:2021:i:c:p:440-452
    DOI: 10.1016/j.iref.2020.09.012
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    2. Chi‐Chur Chao & Leonard F. S. Wang, 2022. "Corporate governance, firm dynamics, and wage inequality," Manchester School, University of Manchester, vol. 90(3), pages 341-353, June.

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    More about this item

    Keywords

    Institutional change; Wage inequality; Incomplete contract;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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