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03 Mar 11

Shaping persistent earnings inequality: labour market policy and institutional factors.

Authors: SOLOGON Denisa, O'DONOGHUE Cathal.

Abstract: This paper explores the role of labour market policy and institutional factors in explaining cross-national differences in persistent earnings inequality in Europe. Using non-linear least squares we reveal a complex framework, where institutions and their systemic interactions play a decisive role in shaping persistent inequality. "Piece-meal" reforms appear more effective in reducing persistent inequality than comprehensive policy packages: a substitution effect in reducing persistent inequality emerges between labour market deregulation, deunionization, the transition from a decentralized to a corporatist economy, increasing tax wedge, product market deregulation, increasing active labour market policies, and decreasing generosity of the unemployment benefit. Under special conditions, however, some complementarity effects do emerge. Moreover, the effect of each reform depends on the institutional mix. High corporatism emerges as the most effective tool in reducing the adverse effects of macroeconomic shocks on persistent inequality.

Reference: SOLOGON Denisa, O'DONOGHUE Cathal. Shaping persistent earnings inequality: labour market policy and institutional factors. CEPS/INSTEAD, 2011, Working Papers n°2011-22, 40 p.

Keywords:
inequality,
permanent earnings inequality,
labour market institutions,
labour market policies

JEL: D31, J00, J31, J50, J60.

Linked publications
SOLOGON Denisa, O'DONOGHUE Cathal
Research on Economic Inequality, 2012, vol. 20, chap. 10, pp. 237-283
SOLOGON Denisa, O'DONOGHUE Cathal
The European Journal of Comparative Economics, 2011, vol. 8, n°2, 28 p.
SOLOGON Denisa, O'DONOGHUE Cathal
CEPS/INSTEAD, 2012, Working Papers n°2012-06, 52 p.