Domestic and International Causes for the Rise of Pay Inequality in OECD Nations Between 1980 and 2000

Abstract

Purpose – We study the determinants of growing wage inequality in 16 OECD countries in the past two decades of the twentieth century. The main independent variables that we consider are those pertaining to labor market institutions, to international trade with less developed nations, and to deindustrialization.

Methodology – We specify a statistical model of pay differentials using first differences over five-year periods. The main estimation method used is weighted ordinary least squares. Where necessary, we use instrumental variables and two-stage least squares. We also undertake extensive robustness exercises, including a version of extreme bounds analysis and deleting each individual country from the analysis.

Findings – The determinants of wage inequality are different in the 1980s and in the 1990s. In the 1980s, growing wage dispersion is due to changes in the institutions of the labor market, including declining unionization and declines in the level at which wages are bargained collectively. In the 1990s, increases in pay inequality are due to increasing trade with less developed nations and weakening of social insurance programs.

Originality – This is the first study to report that the causes for pay inequality differed between the 1980s and the 1990s. It is also the first to document statistically that trade with the less developed nations systematically increases pay inequality in the developed world in the 1990s.

Citation

Golden, M.A. and Wallerstein†, M. (2011), "Domestic and International Causes for the Rise of Pay Inequality in OECD Nations Between 1980 and 2000", Brady, D. (Ed.) Comparing European Workers Part A (Research in the Sociology of Work, Vol. 22 Part 1), Emerald Group Publishing Limited, Leeds, pp. 209-249. https://doi.org/10.1108/S0277-2833(2011)0000022010