Comparative European Politics

, Volume 16, Issue 3, pp 482–510 | Cite as

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

  • Tim Vlandas
Original Article


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.


varieties of capitalism labour market institutions wage inequality wage coordination welfare state union density 



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.

Supplementary material

41295_2016_69_MOESM1_ESM.doc (883 kb)
Online Appendix


  1. Acemoglu, D. (2002) Technical change, inequality and the labour market. Journal of Economic Literature 40(March): 7–72.CrossRefGoogle Scholar
  2. 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.CrossRefGoogle Scholar
  3. 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
  4. 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.CrossRefGoogle Scholar
  5. 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
  6. Borjas, G.J. (2005) Labor Economics, 3rd edn. New York; London: McGraw-Hill.Google Scholar
  7. 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.Google Scholar
  8. 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.CrossRefGoogle Scholar
  9. Brady, David (2003) The politics of poverty: Left political institutions, the welfare state. Social Forces 82(2): 557–588.CrossRefGoogle Scholar
  10. Brambor, T., Clark, W.R. and Golder, M. (2006) Understanding interaction models: Improving empirical analyses. Political Analysis 14(1): 63–82.CrossRefGoogle Scholar
  11. 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
  12. Burtless, G. (1995) International trade and the rise in earnings inequality. Journal of Economic Literature 33(June): 800–816.Google Scholar
  13. 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.CrossRefGoogle Scholar
  14. 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
  15. Clasen, J. and Clegg, D. (2006) Beyond activation: Reforming European unemployment protection systems in post-industrial labour markets. European Societies 8(4): 527–553.CrossRefGoogle Scholar
  16. Daguerre, A. (2007) Active Labour Market Policies and Welfare Reform: Europe and the US in Comparative Perspective. Basingstoke: Palgrave, pp. 1–191.CrossRefGoogle Scholar
  17. 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
  18. Emmenegger, P., Hausermann, S., Palier, B. and Seeleib-Kaiser, M. (2012) The Age of Dualization: Structures, Policies, Politics. New York: Oxford University Press.CrossRefGoogle Scholar
  19. Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism. Cambridge, UK: Polity.Google Scholar
  20. Esping-Andersen, G. (1999) Social Foundations of Postindustrial Economies. Oxford; New York: Oxford University Press.CrossRefGoogle Scholar
  21. 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
  22. 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.CrossRefGoogle Scholar
  23. Freeman, R. (1980) Unionism and the dispersion of wages. Industrial and Labor Relations Review 34(1): 3–23.CrossRefGoogle Scholar
  24. Freeman, R. (1982) Union wage practices and wage dispersion within establishments. Industrial and Labor Relations Review 36(1): 3–21.CrossRefGoogle Scholar
  25. Freeman, R. (1984) Longitudinal analysis of the effects of trade unions. Journal of Labor Economics 2(1): 1–26.CrossRefGoogle Scholar
  26. 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
  27. Freeman, R. and Devroye, D. (2002) Does Inequality in Skills Explain Inequality of Earnings Across Advanced Countries? London: Center for Economic Performance.Google Scholar
  28. Freeman, R. and Katz, L. (1995) Differences and Changes in Wage Structures. Chicago, IL: University of Chicago Press.CrossRefGoogle Scholar
  29. Freeman, R. and Medoff, J. (1984) What Do Unions Do? New York: Basic Books.Google Scholar
  30. Freeman, R.B. (1995) Are your wages set in Beijing. Journal of Economic Perspectives 9: 15–32.CrossRefGoogle Scholar
  31. Garrett, G. (1998) Partisan Politics in the Global Economy. Cambridge, UK; New York: Cambridge University Press.CrossRefGoogle Scholar
  32. 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
  33. Gottschalk, P. and Smeeding, T.M. (1997) Cross-national comparison of earnings and income inequality. Journal of Economic Literature 35: 633–687.Google Scholar
  34. 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.Google Scholar
  35. Hall, P.A. and Soskice, D. (2001) Varieties of Capitalism the Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.CrossRefGoogle Scholar
  36. 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.CrossRefGoogle Scholar
  37. Hirsch, B. (2004) Reconsidering union wage effects: Surveying new evidence on an old topic. Journal of Labor Research XXV(2).Google Scholar
  38. 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
  39. Iversen, T. (1999) Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies. Cambridge, US: Cambridge University Press.Google Scholar
  40. Iversen, T. and Soskice, D. (2009) Dualism and Political Coalitions: Inclusionary Versus Exclusionary Reforms in an Age of Rising Inequality. Toronto.Google Scholar
  41. 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
  42. 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
  43. Korpi, W. (1983) The Democratic Class Struggle. London: Routledge & Kegan Paul.Google Scholar
  44. Korpi, W. (2006) Power resources and employer centered approaches in explanations of welfare states and varieties of capitalisms. World Politics 58(2): 167–206.CrossRefGoogle Scholar
  45. Leppik, L. (2006) In-Work Benefits: Literature Review. Brussels, Belgium: PRAXIS Center for Policy Studies.Google Scholar
  46. 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
  47. OECD (2011) Divided We Stand Why Inequality Keeps Rising. Paris, France.Google Scholar
  48. Palier, B. and Thelen, K. (2010) Institutionalizing dualism: Complementarities and change in France and Germany. Politics and Society 38(1): 119–148.CrossRefGoogle Scholar
  49. Pierson, P. (2001) The New Politics of the Welfare State. Oxford: Oxford University Press.CrossRefGoogle Scholar
  50. 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.CrossRefGoogle Scholar
  51. Pontusson, J. (2013) Unionization, inequality and redistribution. British Journal of Industrial Relations 51(4): 797–825.CrossRefGoogle Scholar
  52. 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.CrossRefGoogle Scholar
  53. Rueda, D. (2007) Social Democracy inside Out. Partisanship and Labour Market Policy in Industrialised Democracies. Oxford: Oxford University Press.CrossRefGoogle Scholar
  54. Rueda, D. (2008) Left government, policy, and corporatism explaining the influence of partisanship on inequality. World Politics 60(2): 349–389.CrossRefGoogle Scholar
  55. Rueda, D. and Pontusson, J. (2000) Wage inequality and varieties of capitalism. World Politics 52(3): 350–383.CrossRefGoogle Scholar
  56. Stephens, J. (1979) The Transition from Capitalism to Socialism. London: Palgrave Macmillan.CrossRefGoogle Scholar
  57. 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
  58. Swensson, P. (1989) Fair Shares. New York: Cornell University Press.Google Scholar
  59. 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.CrossRefGoogle Scholar
  60. Thelen, K. (2014) Varieties of liberalization and the new politics of social solidarity. Cambridge, New York: Cambridge University Press.CrossRefGoogle Scholar
  61. 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
  62. 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.Google Scholar
  63. Vlandas, T. (2013a) The politics of temporary work deregulation in Europe: Solving the French puzzle. Politics & Society 41(3): 425–460.CrossRefGoogle Scholar
  64. Vlandas, T. (2013b) Mixing apples with oranges? Partisanship and active labour market policies in Europe. Journal of European Social Policy 23(1): 3–20.CrossRefGoogle Scholar
  65. 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.CrossRefGoogle Scholar
  66. Wallerstein, M. (1999) Wage-setting institutions and pay inequality in advanced industrial societies. American Journal of Political Science 43(3): 649–680.CrossRefGoogle Scholar
  67. Wood, A. (1994) North-South Trade, Employment and Inequality. Oxford: Clarendon Press.Google Scholar

Copyright information

© Macmillan Publishers Ltd 2016

Authors and Affiliations

  • Tim Vlandas
    • 1
  1. 1.University of Reading, WhiteknightsReadingUK

Personalised recommendations