Labor Market Regulations and Income Inequality: Evidence for a Panel of Countries

59 Pages Posted: 25 Apr 2011

See all articles by César A. Calderón

César A. Calderón

Central Bank of Chile

Alberto Chong

University of Ottawa

Rodrigo Valdés

Central Bank of Chile; Ministry of Finance, Chile

Date Written: October 2004

Abstract

This paper presents evidence on the impact of labor regulations on income inequality using two recently published databases on labor institutions and outcomes (Rama and Artecona, 2002; Botero, Djankov, La Porta, López-de-Silanes and Shleifer, 2003) and different cross-section and panel data analysis techniques for a sample of 121 countries over the 1970-2000 period. When we consider the techniques most likely to be robust, we find that: (i) de jure regulations do not improve income distribution; (ii) relative compliance with existing regulations improves income distribution; (iii) de facto regulations are weakly associated with improving income inequality. This result partly reflects the fact that regulations are endogenous and, more interestingly, different regulations have quite distinct effects. In particular, we find that any redistributive effect of labor regulations may come from trade union membership, public employment and mandated benefits (proxied by maternity leave).

Suggested Citation

Calderon, Cesar A. and Chong, Alberto and Valdés, Rodrigo O., Labor Market Regulations and Income Inequality: Evidence for a Panel of Countries (October 2004). IDB Working Paper No. 426, Available at SSRN: https://ssrn.com/abstract=1818715 or http://dx.doi.org/10.2139/ssrn.1818715

Cesar A. Calderon (Contact Author)

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Alberto Chong

University of Ottawa ( email )

2292 Edwin Crescent
Ottawa, Ontario K2C 1H7
Canada

Rodrigo O. Valdés

Central Bank of Chile ( email )

Agustinas 1180
Research Department
Santiago
Chile
+56 2 670 2000 (Phone)
+56 2 670 2231 (Fax)

Ministry of Finance, Chile

Teatinos 120
Santiago, 8340487
Chile

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