Diverse Disparities: The Politics and Economics of Wage, Market and Disposable Income Inequalities

WZB, Markets and Political Economy Working Paper No. SP II 2004-08

56 Pages Posted: 9 Jun 2004

See all articles by Pablo Beramendi

Pablo Beramendi

WZB Berlin Social Science Center

Thomas R. Cusack

Wissenschaftszentrum Berlin für Sozialforschung (WZB)

Date Written: May 2004

Abstract

This paper analyzes the evolution of inequality and its determinants across different forms of income. A number of results emerge from this effort. First, OECD countries have been and continue to be much more diverse in their distributions of earnings and disposable income than they are in their distributions of market income. Second, the larger cross-national variation in the distributions of earnings and disposable income can be attributed to the role of political actors (such as unions and, more importantly, political parties) and economic institutions that allow actors to coordinate their activities. Third, the transmission of cross-national differences in wage inequality into market-based inequality appears to be muted relative to economic and demographic transformations that have gone on within the OECD countries. Fourth, the way in which political parties are able to pursue their goals varies across forms of income. Political parties' capacity to shape the distribution of earnings is contingent on the degree of wage bargaining coordination. Absent coordination between labor and capital, right-wing policy works to modestly increase inequality. Alternatively, the egalitarian efforts of left-wing parties have the undesired effect of raising earnings inequality. In contrast, when labor market actors are able to coordinate, left-wing policy reinforces the egalitarian effects of coordination whereas the impact of right-wing policy is institutionally constrained. In turn, political parties affect directly the distribution of disposable income through their choices about fiscal redistribution.

Keywords: Income Inequality, Partisan Politics, Institutions, Varieties of Capitalism, Redistribution

JEL Classification: E62, I3, J31, J38

Suggested Citation

Beramendi, Pablo and Cusack, Thomas R., Diverse Disparities: The Politics and Economics of Wage, Market and Disposable Income Inequalities (May 2004). WZB, Markets and Political Economy Working Paper No. SP II 2004-08, Available at SSRN: https://ssrn.com/abstract=555817 or http://dx.doi.org/10.2139/ssrn.555817

Pablo Beramendi (Contact Author)

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin
Germany

Thomas R. Cusack

Wissenschaftszentrum Berlin für Sozialforschung (WZB) ( email )

Institution, States, and Markets Working Group
Reichpietschufer 50
D-10785 Berlin
Germany

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