Divergent Trends and Different Causal Logics: The Importance of Bargaining Centralization When Explaining Earnings Inequality across Advanced Democratic Societies

This article argues that centralized wage bargaining alters the causal logic in explanations of wage inequality, in the sense that common explanatory factors have different effects, given the degree of bargaining centralization. The evidence presented supports the theoretical argument. Using aggregate time-series cross-country data from fifteen capitalist democracies, the article shows that—given decentralized bargaining—trade with less developed countries, resources devoted to research and development, and government employment have inegalitarian effects on the wage distribution, whereas leftist governments and unionism compress wages. However, given centralized wage bargaining these effects gradually disappear or, in some cases, change direction.