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Democracies Pay Higher Wages

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  • Dani Rodrik

Abstract

Controlling for labor productivity, income levels, and other possible determinants, there is a robust and statistically significant association between the extent of democracy and the level of manufacturing wages in a country. The association exists both across countries and over time within countries. The coefficient estimates suggest that nonnegligible wage improvements result from the enhancement of democratic institutions: average wages in a country like Mexico would be expected to increase by 10 to 40 percent if Mexico were to attain a level of democracy comparable to that prevailing in the United States. Political competition and participation seem to be the driving force behind the result.

Suggested Citation

  • Dani Rodrik, 1999. "Democracies Pay Higher Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 707-738.
    • Handle: RePEc:oup:qjecon:v:114:y:1999:i:3:p:707-738.
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    File URL: http://hdl.handle.net/10.1162/003355399556115
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    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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