The Equality Multiplier
AbstractEquality can multiply due to the complementarity between wage determination and welfare spending. A more equal wage distribution fuels welfare generosity via political competition. A more generous welfare state fuels wage equality further via its support to weak groups in the labor market. Together the two effects generate a cumulative process that adds up to an important social multiplier. We focus on a political economic equilibrium which incorporates this mutual dependence between wage setting and welfare spending. It explains how almost equally rich countries differ in economic and social equality among their citizens and why countries cluster around different worlds of welfare capitalism---the Scandinavian model, the Anglo-Saxon model and the Continental model. Using data on 18 OECD countries over the period 1976-2002 we test the main predictions of the model and identify a sizeable magnitude of the equality multiplier. We obtain additional support for the cumulative complementarity between social spending and wage equality by applying another data set for the US over the period 1945-2001.
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Date of creation: Jun 2009
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Find related papers by JEL classification:
- H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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- NEP-ALL-2009-06-17 (All new papers)
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