The Equality Multiplier

55 Pages Posted: 16 Jun 2009 Last revised: 12 Sep 2010

See all articles by Erling Barth

Erling Barth

Institute for Social Research, Norway; Department of Economics, University of Oslo; IZA Institute of Labor Economics

Karl O. Moene

University of Oslo - Department of Economics

Date Written: June 2009

Abstract

Equality can multiply due to the complementarity between wage determination and welfare spending. A more equal wage distribution fuels welfare generosity via political competition. A more generous welfare state fuels wage equality further via its support to weak groups in the labor market. Together the two effects generate a cumulative process that adds up to an important social multiplier. We focus on a political economic equilibrium which incorporates this mutual dependence between wage setting and welfare spending. It explains how almost equally rich countries differ in economic and social equality among their citizens and why countries cluster around different worlds of welfare capitalism---the Scandinavian model, the Anglo-Saxon model and the Continental model. Using data on 18 OECD countries over the period 1976-2002 we test the main predictions of the model and identify a sizeable magnitude of the equality multiplier. We obtain additional support for the cumulative complementarity between social spending and wage equality by applying another data set for the US over the period 1945-2001.

Suggested Citation

Barth, Erling and Moene, Karl O., The Equality Multiplier (June 2009). NBER Working Paper No. w15076. Available at SSRN: https://ssrn.com/abstract=1418934

Erling Barth (Contact Author)

Institute for Social Research, Norway ( email )

Munthesgate 31
0260 Oslo
Norway

Department of Economics, University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Karl O. Moene

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 22855130 (Phone)
+47 22855035 (Fax)

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