Models, Regimes, and the Evolution of Middle Incomes in OECD Countries

Generating rising prosperity for middle-income households is now seen as a fundamental challenge for rich countries: when countries with similar institutional settings are grouped together, can a best-performing model in those terms be identified? This paper investigate how countries, and models or regimes, compare with respect to growth in real household incomes at the median, drawing on data from the two main comparative sources containing that information over recent decades, the Luxembourg Income Study and the OECD Income Distribution Database. It finds remarkably wide variation across OECD countries in recent decades in that respect, but this variation is also seen within the liberal and coordinated market economy models distinguished in the 'varieties of capitalism' literature, as well as within the welfare regimes commonly employed in welfare state analysis, with little difference between them in average growth rates. This remains true when one focuses on working-age households only. The average absolute increase in median income in real terms over time differs a great deal across countries but very much less across these economic models or regimes; the level attained at the most recent year for which data is available is also quite similar across the liberal and coordinated economies and across the social democratic, liberal and corporatist welfare regimes, with the Mediterranean and post-socialist countries/regimes then lagging behind. Many countries have seen growth in the median vary considerably over time, and understanding that variation may be more promising than the search for a consistently best-performing model.