| Resumen: |
This paper takes a fresh look at the causes of the rise of inequality in advanced economies, focusing on the
relationship between labor market institutions and the distribution of incomes—which has featured less
prominently in recent debates. We find evidence that the erosion of labor market institutions is associated with
the rise of income inequality in our sample of advanced economies, notably at the top of the income
distribution. Our key findings are that the decline in unionization is related to the rise of top income shares and
less redistribution, while the erosion of minimum wages is correlated with considerable increases in overall
inequality. There is also some evidence that the broad extension of collective agreements to non-union
members is associated with higher inequality, likely owing to higher unemployment. Finally, we confirm that
financial deregulation and lower top marginal tax rates are related with higher inequality.
The most novel result is the strong negative relationship between unionization and top earners’ income shares.
This finding challenges preconceptions about the channels through which union density affects income
distribution. Indeed, the widely held view is that changes in labor market institutions affect low- and middlewage
workers but are unlikely to have a direct impact on top income earners. We argue that if de-unionization
weakens earnings for middle- and low-income workers, this necessarily increases the income share of
corporate managers and shareholders. The channels through which weaker unions could potentially lead to
higher top income shares include the positive effect of weaker unions on the share of capital income—which
tends to be more concentrated than labor income—and the fact that lower union density may reduce workers’
influence on corporate decisions, including those related to top executive compensation. |
