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The Equality Multiplier: How Wage Setting and Welfare Spending Make Similar Countries Diverge

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Author Info

  • Barth, Erling

    () (Institute for Social Research, Oslo)

  • Moene, Karl Ove

    () (University of Oslo)

Abstract

The complementarity between wage setting and welfare spending can explain how almost equally rich countries differ in economic and social equality among their citizens. More wage equality increases the welfare generosity via political competition in elections. A more generous welfare state fuels wage equality via an empowerment of weak groups in the labor market. Together the two effects generate a cumulative process that adds up to a social multiplier explaining how equality multiplies. Using data on 18 OECD countries over the period 1976-2002 (determined by the availability of the generosity index of welfare spending) we test the main predictions of the model and identify a sizeable magnitude of the equality multiplier. We obtain additional support by using spending data to extend the panel up to 2007, and by applying another data set for the US over the period 1945-2001.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6494.

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Length: 49 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6494

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Keywords: welfare state; wage inequality;

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, November.
  2. Lee, Woojin & Roemer, John E., 2006. "Racism and redistribution in the United States: A solution to the problem of American exceptionalism," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1027-1052, August.
  3. Alberto Alesina & Guido Cozzi & Noemi Mantovan, 2012. "The Evolution of Ideology, Fairness and Redistribution," Economic Journal, Royal Economic Society, vol. 122(565), pages 1244-1261, December.
  4. ?gel de la Fuente & Rafael Dom?ech, . "Human Capital In Growth Regressions: How Much Difference Does Data Quality Make?," UFAE and IAE Working Papers 446.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  5. Rafael Di Tella & Juan Dubra, 2010. "A note on Fairness and Redistribution," Harvard Business School Working Papers 11-059, Harvard Business School.
  6. Rodney Ramcharan, 2010. "Inequality and Redistribution: Evidence from U.S. Counties and States, 1890-1930," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 729-744, November.
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Blog mentions

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  1. An equality multiplier?
    by chris dillow in Stumbling and Mumbling on 2012-05-15 13:57:53

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