Inequality and Labor Market Institutions
IMF Staff Discussion Note No. 15/14
31 Pages Posted: 26 Oct 2015
Date Written: July 17, 2015
The paper examines the role of labor market institutions in the rise of income inequality in advanced economies, alongside other determinants. The evidence strongly indicates that de-unionization is associated with rising top earners’ income shares and less redistribution, while eroding minimum wages are related to increases in overall income inequality. The results, however, also suggest that a lack of representativeness of unions may be associated with higher inequality. These findings do not necessarily constitute a blanket recommendation for higher unionization and minimum wages, as country-specific circumstances and potential trade-offs with other policy objectives need to be considered. Addressing inequality also requires a multipronged approach, which should include taxation reform and curbing excesses associated with financial deregulation.
Keywords: Inequality, top income shares, unions, minimum wage
JEL Classification: D63, E25, J3, J5
Suggested Citation: Suggested Citation