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Diverse disparities: The politics and economics of wage, market and disposable income inequalities

  • Beramendi, Pablo
  • Cusack, Thomas R.

This paper analyzes the evolution of inequality and its determinants across different forms of income. A number of results emerge from this effort. First, OECD countries have been and continue to be much more diverse in their distributions of earnings and disposable income than they are in their distributions of market income. Second, the larger cross-national variation in the distributions of earnings and disposable income can be attributed to the role of political actors (such as unions and, more importantly, political parties) and economic institutions that allow actors to coordinate their activities. Third, the transmission of cross-national differences in wage inequality into market-based inequality appears to be muted relative to economic and demographic transformations that have gone on within the OECD countries. Fourth, the way in which political parties are able to pursue their goals varies across forms of income. Political parties’ capacity to shape the distribution of earnings is contingent on the degree of wage bargaining coordination. Absent coordination between labor and capital, right-wing policy works to modestly increase inequality. Alternatively, the egalitarian efforts of left-wing parties have the undesired effect of raising earnings inequality. In contrast, when labor market actors are able to coordinate, left-wing policy reinforces the egalitarian effects of coordination whereas the impact of right-wing policy is institutionally constrained. In turn, political parties affect directly the distribution of disposable income through their choices about fiscal redistribution.

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Institutions, States, Markets with number SP II 2004-08.

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Date of creation: 2004
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Handle: RePEc:zbw:wzbism:spii200408
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  1. Cusack, Thomas R. & Beramendi, Pablo, 2003. "Taxing work: Some political and economic aspects of labor income taxation," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2003-17, Social Science Research Center Berlin (WZB).
  2. Florence Jaumotte, 2003. "Female Labour Force Participation: Past Trends and Main Determinants in OECD Countries," OECD Economics Department Working Papers 376, OECD Publishing.
  3. Michael Wallerstein & Miriam Golden & Peter Lange, 1997. "Unions, employer associations, and wage-setting institutions in northern and central Europe, 1950û1992," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 50(3), pages 379-401, April.
  4. Hibbs, Douglas Jr., 1992. "Partisan theory after fifteen years," European Journal of Political Economy, Elsevier, vol. 8(3), pages 361-373, October.
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