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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.

Suggested Citation

  • Beramendi, Pablo & Cusack, Thomas R., 2004. "Diverse disparities: The politics and economics of wage, market and disposable income inequalities," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2004-08, Social Science Research Center Berlin (WZB).
  • Handle: RePEc:zbw:wzbism:spii200408

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    References listed on IDEAS

    1. Florence Jaumotte, 2003. "Female Labour Force Participation: Past Trends and Main Determinants in OECD Countries," OECD Economics Department Working Papers 376, OECD Publishing.
    2. Hibbs, Douglas Jr., 1992. "Partisan theory after fifteen years," European Journal of Political Economy, Elsevier, vol. 8(3), pages 361-373, October.
    3. 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).
    4. Michael Wallerstein & Miriam Golden & Peter Lange, "undated". "Unions, Employers Associations, and Wage-Setting Institutions in North and Central Europe, 1950-1992," IPR working papers 96-12, Institute for Policy Resarch at Northwestern University.
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    Cited by:

    1. Troeger, Vera, 2012. "De Facto Capital Mobility, Equality, and Tax Policy in Open Economies," CAGE Online Working Paper Series 84, Competitive Advantage in the Global Economy (CAGE).
    2. Mathew Y. H. Wong, 2013. "Median Voter and Power Resources Revisited: A Composite Model of Inequality," LIS Working papers 584, LIS Cross-National Data Center in Luxembourg.
    3. Lane Kenworthy & Jonas Pontusson, 2005. "Rising Inequality and the Politics of Redistribution in Affluent Countries," LIS Working papers 400, LIS Cross-National Data Center in Luxembourg.
    4. Rehm, Philipp, 2005. "Citizen support for the Welfare State: Determinants of preferences for income redistribution," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2005-02, Social Science Research Center Berlin (WZB).

    More about this item


    Income Inequality; Partisan Politics; Institutions; Varieties of Capitalism; Redistribution;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy


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