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Shaping persistent earnings inequality: labour market policy and institutional factors

Author

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  • SOLOGON Denisa
  • O'DONOGHUE Cathal

Abstract

This paper explores the role of labour market policy and institutional factors in explaining cross-national differences in persistent earnings inequality in Europe. Using non-linear least squares we reveal a complex framework, where institutions and their systemic interactions play a decisive role in shaping persistent inequality. "Piece-meal" reforms appear more effective in reducing persistent inequality than comprehensive policy packages: a substitution effect in reducing persistent inequality emerges between labour market deregulation, deunionization, the transition from a decentralized to a corporatist economy, increasing tax wedge, product market deregulation, increasing active labour market policies, and decreasing generosity of the unemployment benefit. Under special conditions, however, some complementarity effects do emerge. Moreover, the effect of each reform depends on the institutional mix. High corporatism emerges as the most effective tool in reducing the adverse effects of macroeconomic shocks on persistent inequality.

Suggested Citation

  • SOLOGON Denisa & O'DONOGHUE Cathal, 2011. "Shaping persistent earnings inequality: labour market policy and institutional factors," LISER Working Paper Series 2011-22, Luxembourg Institute of Socio-Economic Research (LISER).
    • Handle: RePEc:irs:cepswp:2011-22
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    Citations

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    Cited by:

    1. Denisa Maria Sologon & Cathal O'Donoghue, 2014. "Shaping Earnings Insecurity: Labor Market Policy and Institutional Factors," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(S1), pages 205-232, May.
    2. Denisa Maria Sologon & O'Donoghue, Cathal, 2011. "Shaping earnings instability: labour market policy and institutional factors," MERIT Working Papers 2011-077, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    inequality; permanent earnings inequality; labour market institutions; labour market policies;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J00 - Labor and Demographic Economics - - General - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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