Institutions, Partisanship, and Inequality in the Long Run

Abstract

It has been widely suggested by political scientists that institutions like centralized wage bargaining and factors like government partisanship are correlated with differences in income inequality between advanced industrial countries. There is empirical evidence for the period since 1970 to support each of these propositions. We make use of new data on top income shares to examine the effects of partisanship and wage bargaining over a much longer time period, nearly the entire twentieth century. Our empirical results provide little support for the idea that either of these two factors is correlated with income inequality over this period. We then show that a closer look at the introduction of centralized wage bargaining in individual countries during the 1930s and 1940s reveals that in countries that moved to centralize wage bargaining, income inequality was already trending downward well before the institutional change, and the move to centralized bargaining did not alter this trend. Our results suggest that there were alternative institutional paths to reduced income inequality during most of the twentieth century. This raises the possibility that commonly shared economic and political events, such as world wars and economic crises, may ultimately be more important for understanding the evolution of income inequality than are the institutional or partisan characteristics commonly thought to be decisive.

Keywords: Inequality, Wage Bargaining Institutions, Partisanship

JEL Classification: J31, J51, N30