Shaping persistent earnings inequality: labour market policy and institutional factors

Denisa Sologon and Cathal O'Donoghue

No 2011-22, LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER)

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.

Keywords: inequality; permanent earnings inequality; labour market institutions; labour market policies (search for similar items in EconPapers)
JEL-codes: D31 J00 J31 J50 J60 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011-02
New Economics Papers: this item is included in nep-eur, nep-hme and nep-lab
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:irs:cepswp:2011-22

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