Skip to main content
SpringerLink
Log in

Coordination, inclusiveness and wage inequality between median- and bottom-income workers

  • Original Article
  • Published:
Comparative European Politics Aims and scope

Abstract

What explains cross-national variation in wage inequality? Research in comparative political economy stresses the importance of the welfare state and wage coordination in reducing not only disposable income inequality but also gross earnings inequality. However, the cross-national variation in gross earnings inequality between median- and low-income workers is at odds with this conventional wisdom: the German coordinated market economy is now more unequal in this type of inequality than the United Kingdom, a liberal market economy. To solve this puzzle, I argue that non-inclusive coordination benefits median but not bottom-income workers and is as a result associated with higher – rather than lower – wage inequality. I find support for this argument using a large N quantitative analysis of wage inequality in a panel of Western European countries. Results are robust to the inclusion of numerous controls, country fixed effects, and also hold in a larger sample of OECD countries. Taken together these findings force us to reconsider the relationship between coordination and wage inequality at the bottom of the income distribution.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Figure 6
Figure 7

Similar content being viewed by others

Notes

  1. This shift was the result of changes in the prevailing technology (Freeman and Katz, 1995; Goldin and Katz, 1996; Acemoglu, 2002), the structure of employment (Levy and Murnane, 1992), rising trade competition (Wood, 1994; Burtless, 1995; Freeman, 1995) and immigration (Borjas et al, 1997; Rueda and Pontusson, 2000, p. 357).

  2. The figures for France are net (see Supplementary Appendix) so they are not directly comparable (many thanks to an anonymous reviewer for pointing this out to me). However note that France has one of the highest minimum wage legislation in Western Europe, and other studies have shown that the ratio of median to bottom income earnings is indeed very low. I have also recalculated my results without France and they are unchanged (results available from the author).

  3. ‘A full-time employee is defined as a low-wage earner when his/her annual gross earnings are less than two thirds of the annual full-time median gross earnings’ (Eurostat, 2010, p. 6).

  4. These figures are taken from the Eurostat statistic in focus, see endnote 3.

  5. See Visser’s codebook, endnote 6.

  6. One variable which is not captured here but that could affect wage inequality is trade union ideology – for which there is no reliable data for my whole sample over time. This is only a problem if there is a very strong correlation between union density and egalitarian ideology. For instance, an egalitarian ideology seems more prevalent in Sweden than in Germany (Dolvik and Stokke, 1998; Jacobi et al, 1998, p. 218) and union density is higher in Sweden than in Germany (I thank a reviewer for raising this point). However, it is not obvious that there is necessarily a statistical correlation between the two. Indeed, elsewhere I have created a variable capturing the working class ideology of unions (arguably not a perfect proxy) and union density for a sample of Western European countries after 2000 (Benassi and Vlandas, 2016) and the correlation between the two variables is <0.1, so an omitted variable bias is unlikely to be a problem.

  7. This has the additional advantage of allowing us to be sure that inclusiveness is what matters for wage inequality. In the power resource approach, union density is often construed as an indicator of union strength rather than inclusiveness. It is therefore difficult to rule out that it is union strength rather than inclusiveness that explains the negative correlation between union density and wage inequality (I thank a reviewer for raising this point). However, there is no a priori reason that strength should mediate the effect of coordination on wage inequality.

  8. While the replacement rate after the first year of unemployment could also matter, there are two problems with it. First, the replacement rate after the first year also captures the duration of benefits rather than their level. Second, most workers exit unemployment within 1 year. In any case, data availability for the replacement rate after the first year is very limited.

  9. See Supplementary Appendix 3 for details on years available for each variable.

  10. The results are reported in Supplementary Appendix 3.

  11. My results do not change if the trend that I include in certain models is excluded, nor if GDP growth is excluded. I have further rerun my key regressions without France – which has a different measure of wage inequality that is net rather than gross – and my key results are unchanged. I am grateful to an anonymous reviewer for suggesting these robustness checks.

  12. Note that data for these variables only starts in the mid-1980s so the number of observations drops slightly.

  13. The original 14 Western European countries plus Australia, Canada, New Zealand, Switzerland, Japan and the United States.

  14. See Supplementary Table A2.2 for details on the time period by country available for each independent variable.

  15. I am grateful to an anonymous reviewer for suggesting this interpretation of this finding.

References

  • Acemoglu, D. (2002) Technical change, inequality and the labour market. Journal of Economic Literature 40(March): 7–72.

    Article  Google Scholar 

  • Baccaro, Lucio and Howell, Chris (2011) A common neoliberal trajectory: The transformation of industrial relations in advanced capitalism. Politics and Society 39(4): 521–563.

    Article  Google Scholar 

  • Becher, M. and Pontusson, J. (2011) Whose interests do unions represent? Unionization by income in Western Europe. Comparing European Workers: Research in the Sociology of Work 22: 181–211.

    Google Scholar 

  • Benassi, C. and Vlandas, T. (2016) Union inclusiveness and temporary agency workers: The role of power resources and union ideology. European Journal of Industrial Relations 22(1): 5–22.

    Article  Google Scholar 

  • Blau, F.D. and Kahn, L. (2002) At Home and Abroad: Us Labour Market Performance in International Perspective. New York: Russell Sage foundation.

    Google Scholar 

  • Borjas, G.J. (2005) Labor Economics, 3rd edn. New York; London: McGraw-Hill.

    Google Scholar 

  • Borjas, G.J., Freeman, R.B. and Katz, L.F. (1997) How much do immigration and trade affect labor market outcomes? Brookings Papers on Economic Activity (1): 1–90.

  • Bradley, D., Huber, E., Moller, S., Nielsen, F. and Stephens, J.D. (2003) Distribution and redistribution in postindustrial democracies. World Politics 55(2003): 193–228.

    Article  Google Scholar 

  • Brady, David (2003) The politics of poverty: Left political institutions, the welfare state. Social Forces 82(2): 557–588.

    Article  Google Scholar 

  • Brambor, T., Clark, W.R. and Golder, M. (2006) Understanding interaction models: Improving empirical analyses. Political Analysis 14(1): 63–82.

    Article  Google Scholar 

  • Budd, J.W. and Na, I.G. (1994) The Union Membership Wage Premium for Employees Covered by Collective Bargaining Agreements. Minnesota, US: Industrial Relations Center.

    Google Scholar 

  • Burtless, G. (1995) International trade and the rise in earnings inequality. Journal of Economic Literature 33(June): 800–816.

    Google Scholar 

  • Card, D., Lemieux, T. and Riddell, C. (2003) Unionisation and Wage Inequality: A Comparative Study of the US, the UK, and Canada. National Bureau of Economic Research, NBER Working Papers 9473.

    Book  Google Scholar 

  • Checchi, D., Visser, J. and van de Werfhorst, H. (2007) Inequality and Union Membership: The Impact of Relative Earnings Position and Inequality Attitudes. Bonn, Germany: IZA.

    Google Scholar 

  • Clasen, J. and Clegg, D. (2006) Beyond activation: Reforming European unemployment protection systems in post-industrial labour markets. European Societies 8(4): 527–553.

    Article  Google Scholar 

  • Daguerre, A. (2007) Active Labour Market Policies and Welfare Reform: Europe and the US in Comparative Perspective. Basingstoke: Palgrave, pp. 1–191.

    Book  Google Scholar 

  • Dolvik, J.E. and Stokke, T.A. (1998) Norway: The revival of centralized concertation. In: A. Ferner and R. Hyman (eds.) Changing Industrial Relations in Europe. Oxford: Blackwell.

    Google Scholar 

  • Emmenegger, P., Hausermann, S., Palier, B. and Seeleib-Kaiser, M. (2012) The Age of Dualization: Structures, Policies, Politics. New York: Oxford University Press.

    Book  Google Scholar 

  • Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism. Cambridge, UK: Polity.

    Google Scholar 

  • Esping-Andersen, G. (1999) Social Foundations of Postindustrial Economies. Oxford; New York: Oxford University Press.

    Book  Google Scholar 

  • Estevez-Abe, M., Iversen, T. and Soskice, D. (2001) Social protection and the formation of skills: A reinterpretation of the welfare state. In: P. Hall and D. Soskice (eds.) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.

    Google Scholar 

  • Eurostat (2010) Statistics in focus, http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-10-003/EN/KS-SF-10-003-EN.PDF.

  • Fortin, N.M. and Lemieux, T. (1997) Institutional changes and rising wage inequality: Is there a linkage? Journal of Economic Perspectives 11(2): 75–96.

    Article  Google Scholar 

  • Freeman, R. (1980) Unionism and the dispersion of wages. Industrial and Labor Relations Review 34(1): 3–23.

    Article  Google Scholar 

  • Freeman, R. (1982) Union wage practices and wage dispersion within establishments. Industrial and Labor Relations Review 36(1): 3–21.

    Article  Google Scholar 

  • Freeman, R. (1984) Longitudinal analysis of the effects of trade unions. Journal of Labor Economics 2(1): 1–26.

    Article  Google Scholar 

  • Freeman, R. (1993) How much deunionization contributed to the rise in male earnings inequality? In: S. Danziger and P. Gottschalk (eds.) Uneven Tides: Rising Inequality in America. New York: Russell Sage, pp. 133–1623.

    Google Scholar 

  • Freeman, R. and Devroye, D. (2002) Does Inequality in Skills Explain Inequality of Earnings Across Advanced Countries? London: Center for Economic Performance.

    Google Scholar 

  • Freeman, R. and Katz, L. (1995) Differences and Changes in Wage Structures. Chicago, IL: University of Chicago Press.

    Book  Google Scholar 

  • Freeman, R. and Medoff, J. (1984) What Do Unions Do? New York: Basic Books.

    Google Scholar 

  • Freeman, R.B. (1995) Are your wages set in Beijing. Journal of Economic Perspectives 9: 15–32.

    Article  Google Scholar 

  • Garrett, G. (1998) Partisan Politics in the Global Economy. Cambridge, UK; New York: Cambridge University Press.

    Book  Google Scholar 

  • Goldin, C. and Katz, L.F. (1996) Technology, skill, and the wage structure: Insights from the past. American Economic Review 86(2): 252–257.

    Google Scholar 

  • Gottschalk, P. and Smeeding, T.M. (1997) Cross-national comparison of earnings and income inequality. Journal of Economic Literature 35: 633–687.

    Google Scholar 

  • Hall, P.A. and Gingerich, D.W. (2004) Varieties of Capitalism and Institutional Complementarities in the Macroeconomy: An Empirical Analysis. Cologne, Germany: Max Planck Institute for the Study of Societies. Discussion Paper 04/5.

  • Hall, P.A. and Soskice, D. (2001) Varieties of Capitalism the Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Hancké, B., Rhodes, M. and Thatcher, M. (eds.) (2007) Beyond Varieties of Capitalism: Conflict, Contradictions, and Complementarities in the European Economy. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Hirsch, B. (2004) Reconsidering union wage effects: Surveying new evidence on an old topic. Journal of Labor Research XXV(2).

  • Huber, E., Stephens, J.D. and Ray, L. (1999) The welfare state in hard times. In: H. Kitschelt, P. Lange, G. Marks and J.D. Stephens (eds.) Continuity and Change in Contemporary Capitalism. New York; Cambridge, US: Cambridge University Press, pp. 164–193.

    Google Scholar 

  • Iversen, T. (1999) Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies. Cambridge, US: Cambridge University Press.

    Google Scholar 

  • Iversen, T. and Soskice, D. (2009) Dualism and Political Coalitions: Inclusionary Versus Exclusionary Reforms in an Age of Rising Inequality. Toronto.

    Google Scholar 

  • Jacobi, O., Keller, B. and Müller-Jentsch, W. (1998) Germany: Facing new challenges. In: A. Ferner and R. Hyman (eds.) Changing Industrial Relations in Europe. Oxford: Blackwell.

    Google Scholar 

  • Kenworthy, L. and Pontusson, J. (2005) Rising inequality and the politics of redistribution in affluent countries. Perspectives on Politics 3(1): 449–471.

    Google Scholar 

  • Korpi, W. (1983) The Democratic Class Struggle. London: Routledge & Kegan Paul.

    Google Scholar 

  • Korpi, W. (2006) Power resources and employer centered approaches in explanations of welfare states and varieties of capitalisms. World Politics 58(2): 167–206.

    Article  Google Scholar 

  • Leppik, L. (2006) In-Work Benefits: Literature Review. Brussels, Belgium: PRAXIS Center for Policy Studies.

    Google Scholar 

  • Levy, F. and Murnane, R.J. (1992) U.S. earnings levels and earnings inequality – A review of recent trends and proposed explanations. Journal of Economic Literature 30(3): 1333–1381.

    Google Scholar 

  • OECD (2011) Divided We Stand Why Inequality Keeps Rising. Paris, France.

  • Palier, B. and Thelen, K. (2010) Institutionalizing dualism: Complementarities and change in France and Germany. Politics and Society 38(1): 119–148.

    Article  Google Scholar 

  • Pierson, P. (2001) The New Politics of the Welfare State. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Plümper, T., Troeger, V. and Manow, P. (2005) Panel data analysis in comparative politics: Linking method to theory. European Journal of Political Research 44(2): 327–354.

    Article  Google Scholar 

  • Pontusson, J. (2013) Unionization, inequality and redistribution. British Journal of Industrial Relations 51(4): 797–825.

    Article  Google Scholar 

  • Pontusson, J., Rueda, D. and Way, C.R. (2002) Comparative political economy of wage distribution: The role of partisanship and labour market institutions. British Journal of Political Science 32(2): 281–308.

    Article  Google Scholar 

  • Rueda, D. (2007) Social Democracy inside Out. Partisanship and Labour Market Policy in Industrialised Democracies. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Rueda, D. (2008) Left government, policy, and corporatism explaining the influence of partisanship on inequality. World Politics 60(2): 349–389.

    Article  Google Scholar 

  • Rueda, D. and Pontusson, J. (2000) Wage inequality and varieties of capitalism. World Politics 52(3): 350–383.

    Article  Google Scholar 

  • Stephens, J. (1979) The Transition from Capitalism to Socialism. London: Palgrave Macmillan.

    Book  Google Scholar 

  • Swank, D., Martin, C.J. and Kathleen, T. (2008) Institutional Change and the Politics of Social Solidarity in the Advanced Capitalist Democracies, Annual meeting of the Annual meeting of the American Political Science Association. Boston, MA.

    Google Scholar 

  • Swensson, P. (1989) Fair Shares. New York: Cornell University Press.

    Google Scholar 

  • Thelen, K. (2012) Varieties of capitalism: Trajectories of liberalization and the new politics of social solidarity. Annual Review of Political Science 15(12): 137–159.

    Article  Google Scholar 

  • Thelen, K. (2014) Varieties of liberalization and the new politics of social solidarity. Cambridge, New York: Cambridge University Press.

    Book  Google Scholar 

  • Traxler, F. and Brandl, B. (2009) The Economic Effects of Collective Bargaining Coverage. Geneva, Switzerland: International Labour Office; Global Union Research Network (GURN).

    Google Scholar 

  • Visser, J. (2013) ICTWSS: Data Base on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts, 1960–2011 (ICTWSS). Amsterdam, Netherlands: Amsterdam Institute for Advanced Labour Studies (AIAS), University of Amsterdam, Version 4.0.

  • Vlandas, T. (2013a) The politics of temporary work deregulation in Europe: Solving the French puzzle. Politics & Society 41(3): 425–460.

    Article  Google Scholar 

  • Vlandas, T. (2013b) Mixing apples with oranges? Partisanship and active labour market policies in Europe. Journal of European Social Policy 23(1): 3–20.

    Article  Google Scholar 

  • Vlandas, T. (2013c) The politics of in-work benefits: The case of the ‘active income of solidarity’ in France. French Politics 11(2): 117–142.

    Article  Google Scholar 

  • Wallerstein, M. (1999) Wage-setting institutions and pay inequality in advanced industrial societies. American Journal of Political Science 43(3): 649–680.

    Article  Google Scholar 

  • Wood, A. (1994) North-South Trade, Employment and Inequality. Oxford: Clarendon Press.

    Google Scholar 

Download references

Acknowledgements

The author is grateful to David Marsden, Marco Simoni, Bob Hancke, David Rueda, Silja Häusermann, Bruno Amable, Julie Valentin, David Soskice, Peter Hall, Chiara Benassi, Alison Johnston, Abel Bojar, Philippe Pochet, Baptiste Francon, Michael Zemmour, Elvire Guillaud, Jonathan Golub and the participants of the seminar co-organized by PSE (Paris School of Economics) and MSE (University Paris 1 Pantheon-Sorbonne) as well as the 2013 ECPR joint session in Mainz for comments and discussion on previous versions of this article. The author accepts responsibility for any errors remaining in the article.

Author information

Authors and Affiliations

  1. University of Reading, Whiteknights, PO Box 217, Reading, RG6 6AH, Berkshire, UK

    Tim Vlandas

Authors
  1. Tim Vlandas
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

Supplementary information accompanies this article on the Comparative European Politics Website (www.palgrave-journals.com/cep)

Electronic supplementary material

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Vlandas, T. Coordination, inclusiveness and wage inequality between median- and bottom-income workers. Comp Eur Polit 16, 482–510 (2018). https://doi.org/10.1057/cep.2016.25

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/cep.2016.25

Keywords

Search

Navigation