Union power and inequality

From VoxEU:


Inequality in advanced economies has risen considerably since the 1980s, largely driven by the increase of top earners’ income shares. This column [by Florence Jaumotte and Carolina Osorio Buitron (both at the IMF)] revisits the drivers of inequality, emphasising the role played by changes in labour market institutions. It argues that the decline in union density has been strongly associated with the rise of top income inequality and discusses the multiple channels through which unionisation matters for income distribution.

Revisiting the drivers of inequality: The role of labour market institutions

Rising inequality in advanced economies, in particular at the top of the distribution, has become a great focus of attention for economists and policymakers. In most advanced economies, the share of income accruing to the top 10% earners has increased at the expense of all other income groups (Figure 1). While some inequality can increase efficiency by strengthening incentives to work and invest, recent research suggests that high inequality is associated with lower and less sustainable growth in the medium run (Berg and Ostry 2011, Dabla-Norris et al. 2015). Moreover, a rising concentration of income at the top of the distribution can also reduce welfare by allowing top earners to manipulate the economic and political system in their favour (Stiglitz 2012).

Traditional explanations for the rise of inequality in advanced economies have been skill-biased technological change and globalisation, which increase the relative demand for skilled workers. However, these forces foster economic growth, and there is little policymakers are able or willing to do to reverse these trends. Moreover, while high income countries have been similarly affected by technological change and globalisation, inequality in these economies has risen at different speeds and magnitudes.

Figure 1. Evolution of inequality measures in advanced economies

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Posted by at 10:29 AM

Labels: Unemployment

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