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Globalisation, technological progress and changes in regulations and institutions – which impact on the rise of earnings inequality in OECD countries?

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  • Wen Hao Chen

    ()

  • Michael Förster

    ()

  • Ana Llena-Nozal

    ()

Abstract

This paper examines the distributive impact of economic globalisation, technological progress and changes in labour market policies, regulations and institutions in OECD countries over the past quarter century, up to the Great Recession. It identifies the relevant pathways between macro-economic developments and earnings inequality among the whole working-age population by accounting for both changes in wage dispersion among workers and changes in earnings gaps between the employed and non-employed. The results suggest that technological progress is a key driver behind the upward trend of earnings inequality; it transmitted inequality mainly through raising wage dispersion. Economic globalisation, in terms of both rapidly rising trade and financial integration, appears overall distributional neutral once other factors, in particular changes in policies and institutions, are also controlled for. Regulatory reforms that aimed at promoting growth and productivity appeared to exert contrasting effects: they tended to close the gap between employed and non-employed, by increasing job opportunities but at the same time also contributed to greater wage inequality. Finally, the growth in the supply of skilled workers is an important equalizing factor contributing not only to reduce wage dispersion among workers but also to higher employment rates. Up-skilling provided a sizable counterweight to the increase in earnings inequality resulting from technological progress, pressure from globalisation and institutional changes.

Suggested Citation

  • Wen Hao Chen & Michael Förster & Ana Llena-Nozal, 2013. "Globalisation, technological progress and changes in regulations and institutions – which impact on the rise of earnings inequality in OECD countries?," LIS Working papers 597, LIS Cross-National Data Center in Luxembourg.
  • Handle: RePEc:lis:liswps:597
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    References listed on IDEAS

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    More about this item

    Keywords

    Globalisation; innovation; labour market institutions; inequality; employment;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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