Academic journal article International Journal of Labour Research

Labour Markets, Wage Dispersion and Union Policies

Academic journal article International Journal of Labour Research

Labour Markets, Wage Dispersion and Union Policies

Article excerpt


The change towards a more unequal distribution of income and wealth has been one of the key features of economic development in most countries of the world during the last decades. This not only undermines justice and endangers social coherence, but has also become a limiting factor for growth and employment. Higher income inequality and wealth distribution lead to a lower propensity to consume and to insufficient demand, because the rich consume less out of their income than the poor. Furthermore, investment makes no sense when demand is insufficient. Credit-driven consumption demand or pushing for higher exports to increase export surpluses are not beneficial for the world economy and can lead to financial crises and long periods of low growth. Thus, the reduction of income inequality is central to social and economic development.

The market income distribution of households depends on the functional income distribution between wages and profits and, given this distribution, on the structure of the flow of profits and wages to households. Disposable income distribution reflects the situation after government s redistribution policies. Table 1 shows that in the OECD between the mid-1980s and the late 2000s, the Gini coefficient increased substantially for disposable and even more for market income. In many countries in the rest of the world similar developments can be found.

We see the main reasons for these changes in the "neoliberal revolution" (Harvey, 2005, p. 29) in the 1970s and 1980s, which led to structural changes in the capitalist system. As part of this political project, national and international financial markets and labour markets were deregulated. Financialization as well as rent-seeking by financial institutions and corporations in general have led to increasing profit shares. As most profits in the form of interest, dividends, and so on. flow to a relatively small number of persons, a higher profit share increases inequality. If bonus payments to man-agement are considered as part of profits, then profit shares have increased even more (Diinhaupt, 2013). However, changes in wage dispersion also play an important role in income distribution simply because in most countries wages make up 60 to 70 per cent of total income. This means that even small changes in wage dispersion can have devastating effects on the distribution of disposable income.

The OECD has calculated that between the mid-1980s and mid-2000s, over 70 per cent of changes in disposable income distribution was caused by increasing wage dispersion in member countries (OECD, 2011, p. 240).1 In some countries a low-wage sector developed alongside a very high-wage one. In other countries, the lower part of the wage structure did not change much but the sector with high wages exploded. And there are also cases where wage dispersion changed hardly at all or even decreased. The OECD summarizes this as follows (ibid., p. 88):

Overall, using available time-series data, wage dispersion increased in a majority (16 out of 23) of OECD countries over this period, at a 5% level of significance. Only two countries (France and Spain) registered a moderate and statistically significant decline in wage inequality, whereas no significant trend was estimated for the other five countries (Korea, Belgium, Finland, Japan and Ireland).

In most countries "the distance between the highest 10% earners and those in the middle has been growing faster than the distance between the middle and the lowest wage earners" (ibid., p. 86). The divergences between countries underscore that it is difficult to attribute increases in inequality to transnational factors such as technological development or globalization.

Looking at the gender wage gap, which is illustrated here by the differential between gross hourly wages of men and women, we see that in the OECD countries the median wages of women were 17.6 per cent lower than the median wages of men in 2008. …

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