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Labour Market Institutions and Wage Inequality

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Author Info
Koeniger, Winfried (IZA Bonn)
Leonardi, Marco () (University of Milan and IZA Bonn)
Nunziata, Luca (Nuffield College, Oxford, University of Milan and IZA Bonn)

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Abstract

In this paper we investigate the importance of labor market institutions such as unemployment insurance, unions, firing regulation and minimum wages for the evolution of wage inequality across countries. We derive a simple log-linear equation of the wage differential as a function of the institutional parameters, total factor productivity, final good prices and relative skill supply. Our estimates for 11 OECD countries imply that labor market institutions can account for a large part of the change of wage inequality across countries after controlling for time and country effects.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1291.

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Length: 37 pages
Date of creation: Sep 2004
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Handle: RePEc:iza:izadps:dp1291

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Related research
Keywords: labor market institutions wage differential by skill bilateral monopoly country panel data

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December. [Downloadable!] (restricted)
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  2. David Card & Thomas Lemieux & W. Craig Riddell, 2003. "Unionization and Wage Inequality: A Comparative Study of the U.S, the U.K., and Canada," NBER Working Papers 9473, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August. [Downloadable!] (restricted)
  4. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August. [Downloadable!] (restricted)
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  5. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
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  6. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June. [Downloadable!] (restricted)
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  7. David S. Lee, 1999. "WAGE INEQUALITY IN THE UNITED STATES DURING THE 1980s: RISING DISPERSION OR FALLING MINIMUM WAGE?," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 977-1023, August. [Downloadable!] (restricted)
  8. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
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  9. Stephen Machin & John Van Reenen, 1998. "Technology And Changes In Skill Structure: Evidence From Seven Oecd Countries," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1215-1244, November. [Downloadable!] (restricted)
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  10. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January. [Downloadable!] (restricted)
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  11. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May. [Downloadable!] (restricted)
  12. L. Nunziata, 2002. "Institutions and Wage Determination: A Multi-Country Approach," Working Papers 433, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
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  13. Danthine, Jean-Pierre & Hunt, Jennifer, 1994. "Wage Bargaining Structure, Employment and Economic Integration," Economic Journal, Royal Economic Society, vol. 104(424), pages 528-41, May. [Downloadable!] (restricted)
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  14. Machin, Stephen, 1997. "The decline of labour market institutions and the rise in wage inequality in Britain," European Economic Review, Elsevier, vol. 41(3-5), pages 647-657, April. [Downloadable!] (restricted)
  15. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  16. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ioannis Cholezas & Panos Tsakloglou, 2007. "Earnings Inequality in Europe: Structure and Patterns of Inter-Temporal Changes," IZA Discussion Papers 2636, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Winfried Koeniger & Marco Leonardi, 2006. "Capital Deepening and Wage Differentials: Germany vs. US," IZA Discussion Papers 2065, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Robert E. Lipsey & Birgitta Swedenborg, 2007. "Explaining Product Price Differences Across Countries," NBER Working Papers 13239, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Jorg, LINGENS & Klaus, WAELDE, 2005. "Pareto-Improving Unemployment Policies," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2005033, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  5. Daniel, Kirsten & Siebert, W. Stanley, 2004. "Does Employment Protection Reduce the Demand for Unskilled Labor?," IZA Discussion Papers 1290, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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