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Wage Inequality in Europe: the Role of Labour Market and Redistributive Institutions

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Author Info
Elisabetta Croci Angelini ()
Francesco Farina ()

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Abstract

This paper aims at a deeper understanding of the determinants of wage inequality, the most important component of income inequality, in the European countries. We investigate on how wage inequality is affected by government regulation in the labour market and by the redistribution operated by the social protection system, also controlling for the impact of the effect of skillpremium related to technical change. To explain the continuously rising wage inequality in Europe, two regression models of wage inequality are employed each one using a different databases. In the last period, the overall degree of governance of the labour markets does not substantially change, but a different balance between decreasing labour market regulation and increasing redistribution manifest across Europe. While job and wage protection has been eased, income redistribution was strengthened, though its size differs across four clusters of European countries, depending on the majority voting preference for “risk insurance”. Overall, institutional substitution between labour market regulation and income redistribution seems to back the upward trend in wage inequality

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 463.

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Handle: RePEc:usi:wpaper:463

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Find related papers by JEL classification:
D33 - Microeconomics - - Distribution - - - Factor Income Distribution
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. 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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  2. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and in the long run?," Public Economics 0411004, EconWPA. [Downloadable!]
  3. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
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  4. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier. [Downloadable!] (restricted)
  5. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Bertola, Giuseppe & Blau, Francine D & Kahn, Lawrence, 2001. "Comparative Analysis of Labour Market Outcomes: Lessons for the US from International Long-Run Evidence," CEPR Discussion Papers 3023, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. 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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  8. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October. [Downloadable!]
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  9. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June. [Downloadable!] (restricted)
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(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. Simone Bertoli & Francesco Farina, 2007. "The functional distribution of income: a review of the theoretical literature and of the empirical evidence around its recent pattern in European countries," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 005, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
  2. Elisabetta Croci Angelini & Francesco Farina, 2007. "Technological choices under institutional constraints: measuring the impact on earnings dispersion," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 006, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
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